A firm will not pay dividends until four years from now. Starting in year four dividends will be $2.20 per share, the retention ratio will be 40 percent, and ROE will be0. 15. If k = 10%, what should be the value of the stock?
Your answer: D was correct!
g = ROE×retention ratio = ROE ×b = 15 ×0.4 = 6%
Based on the growth rate we can calculate the expected price in year 3:
P3 = D4 / (k-g) = 2.2 / (0.10 - 0.06) = $55
The stock value today is: P0 = PV (55) at 10% for 3 periods = $41.32 | 
发表于 2006-4-27 15:00
| 