Current Stock Price = P0 = $ 39.76, Current Dividend = D0 = $ 7.75 and let the perpetual constant rate of decline in dividends be g
Required Return = r = 15.5 %
D1 = D0 x (1-g)
As per the Gordon - Growth Model: P0 = D1/(r-g)
g = r - (D1/P0)
g = r - [D0 x (1-g)] / P0
g = 0.155 - [7.75/39.76] x (1-g)
g = 0.155 - 0.19492 + 0.19492g
0.80508g = - 0.03992
g = - 0.03992 / 0.80508 = - 0.04958 or - 4.958 % ~ - 4.96 % (a negative sign indicates a decline in the dividend)
Hence, the correct option is (a)
Question 4 Due to the advent and proliferation of life extension technology, the funeral services industry...
Due to the advent and proliferation of life extension technology, the funeral services industry has been seeing a steady year-to-year decline. Press F is a publicly-listed, low-cost chain of funeral homes that specialises in helping bereaved families pay respects. The firm has just paid its annual dividend of $7.75 per share. Shares of Press F currently trade on the market for a price of $39.76 each, with investors requiring a return of 15.5% per annum. Based on the above information,...
uestion 4 ue to the advent and proliferation of life extension technology, the funeral services dustry has been seeing a steady year-to-year decline. Press F is a publicly-listed, w-cost chain of funeral homes that specialises in helping bereaved families pay espects. The firm has just paid its annual dividend of $7.75 per share. Shares of Press F currently trade on the market for a price of 3976 each, with investors equiring a return of 15.5% per annum. Based on the...
uestion 4 ue to the advent and proliferation of life extension technology, the funeral services ndustry has been seeing a steady year-to-year decline. Press F is a publicly-listed, w-cost chain of funeral homes that specialises in helping bereaved families pay espects. The firm has just(paid its annual dividend of $7.75 per share. Shares of Press F currently trade on the market for a price of $39.76 each, with investors equiring a return of 15.5% per annum. m. Ti = 15.57....