Constant-Growth Model
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Constant-Growth Model.
Gentleman Gym just paid its annual dividend of $3 per share, and it is widely expected that the dividend will increase by 5 percent per year indefinitely.
1. What price should the stock sell at? The discount rate is 15 percent.
2. How would your answer change if the discount rate were only 12 percent? Why does the answer change?
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Solution Summary
Constant-Growth Model is applied.
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Po = Div1/(ke-g)
Div1= Expected dividend per share next year.
P0= Market price
G= growth
Ke= Cost of equity
Div1= Current dividend *(1+g)
1. What ...
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