Purchase Solution

Constant-Growth Model

Not what you're looking for?

Ask Custom Question

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?

Purchase this Solution

Solution Summary

Constant-Growth Model is applied.

Solution Preview

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 ...

Purchase this Solution


Free BrainMass Quizzes
Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.