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Value of common stock

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Company has had declining sales and increasing expenses over the last decade and expects this trend to continue. As a result, the company predicts that earnings and dividends will decline indefinitely at a rate of 4% per year.

Company's last dividend (D/OD) was $2 per share. If the market required rate of return is 125%, estimate the value of company's common stock.

Please provide formulas for your response. Thanks.

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Solution Summary

The solution explains how to calculate the value of common stock. The company's last dividend was $2 per share.

Solution Preview

Since the dividends decline at a constant rate, we can use the constant growth formula. ...

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