Constant growth dividend discount model

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Reference no: EM131908845

Use the constant growth dividend discount model to solve the following:

Question 1

A. A firm pays a dividend of $3 per share annually. If the expected growth rate is 4% and the share price is $30, what is the required rate of return?

B. A firm pays a dividend of $4 per share annually. The current share price is $50 and the market required rate of return is 12%. What expected long-term growth rate is consistent with this information.

Question 2

An industrial firm has an ROE of 12%, earnings per share of $10 and a plowback ratio of 60%.

A. If the market capitalization rate is 8%, determine the P/E ratio.

B. What is the present value of the firm's growth opportunities?

Reference no: EM131908845

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