Share
Explore BrainMass

Stock Pricing - Crunchy Chicken

Crunchy Chicken is launching an IPO. They are concerned about how to price the stock. Their investment bank suggests a price of $20 given their performance over the past 2 years. The Crunchy Chicken company paid a dividend of $1.25 per share in the next year. They anticipate that the company will continue to grow at a constant rate of 7%. They will have a required rate of return of 9%. Given this information is the price of $20 to high or to low?

What will happen to the price of the stock if the growth rate slows to 5% due to Asian Bird flu?

Some board members want to increase the dividend to $1.50. What will the new stock price be?

Solution Preview

Crunchy Chicken is launching an IPO. They are concerned about how to price the stock. Their investment bank suggests a price of $20 given their performance over the past 2 years. The Crunchy Chicken company paid a dividend of $1.25 per share in the next year. They anticipate that the company will continue to grow at a constant rate of 7%. They will have a required rate of return of 9%. Given this information is the price of $20 to high or to low?

What will happen to the ...

Solution Summary

Calculates stock price using constant growth dividend discount model.

$2.19