Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. high growth period: growth rate during period = 10

High Growth Period: Growth rate during period = 10% Payout rate during period = 40%...

50.1K

Verified Solution

Question

Finance

High Growth Period:

Growth rate during period = 10%

Payout rate during period = 40%

Stable Growth Period:

Growth rate during period = -1%

Payout rate during period = 80%

Please assume all other inputs remain unchanged. Please show your work.

There are two stocks. Assume a capitalization rate of 10%.

  1. Stock A is expected to pay a dividend of $15 next year. Thereafter, dividend growth is expected to be -2% per annum forever (note that dividends are declining).
  2. Stock B is expected to pay a dividend of $15 next year. Thereafter, dividend growth is expected to be 2% a year for 5 years (i.e., until year 6) and zero thereafter.

If the market capitalization rate is 10%, which stock is the more valuable? Show your work.

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students