Estimate the value of the common stock

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Question 1: Mestron Motors' common stock currently pays an annual dividend of $1.80 per share. The required return on the common stock is 12%. Estimate the value of the common stock under each of the following assumptions:

a) Dividends are expected to grow at an annual rate of 0% to infinity.

b) Dividends are expected to grow at a constant annual rate of 5% to infinity.

c) Suppose this company starts with plant equipment of $100mil. With ROE of 15%, total earnings are ROE x $100 mil =15mil. If 40% of the 15mil is reinvested. Estimate the new value of the common stock.

Reference no: EM132495295

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