Stock Value
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Consider the following three stocks:
A: Stock A is expected to provide a dividend of $10 a share forever
B: Stock B is expected to pay a dividend of $5 next year. Thereafter, dividend growth is expected to be 4 percent a year forever.
C: Stock C is expected to pay a dividend of $5 next year. Thereafter, dividend growth is expected to be 20 percent a year for 5 years (i.e., until year 6) and zero thereafter.
If the market capitalization rate for each stock is 10 percent, which stock is the most valuable?
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Solution Summary
Identifies the stock with the highest value
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