ABC’s stock is expected to distribute a dividend of € 1.00 next year with dividends increasing...
ABC’s stock is expected to distribute a dividend of € 1.00 next year with dividends increasing for years 2, 3 and 4 by 5% per year. Thereafter dividends are expected to grow by a fixed rate every year. The ROE and plowback (retention) rate after year 4 are expected to be 5% and 25% respectively.
Based on the information above answer questions 1 and 3
1. What is the expected growth rate of dividends from year 5 onwards? a. 5% b. 3% c. 1% d. 4% e. 10% 32.
2. What is the expected year 5 dividend? a. €1.25 b. €1.17 c. €1.10 d. €1.03 e. €1.30 33.
3.If the cost of equity of the company is 10%, judging by the previously mentioned assumptions, what is the fair price of this stock? a. €8.25 b. €10.36 c. €12.27 d. €13.28 e. €5.30
Please analytical answers!
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