Markets required rate of return remains constant

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Cayman’s Crafters is also considering issuing new shares of common stock. Their investment banker has advised them that it is a good time to sell and that the market’s required rate of return on similar securities is currently 8.5%. Cayman’s analysts predict that the growth rate of earnings and dividends for the next four years will be 22% but that after that, they will grow at a constant rate of 3.2% indefinitely. Shareholders received a $8.00 dividend, yesterday. You are interested in buying the stock, however, you don’t have enough money today. You will be receiving a bonus check in 2 years and at that time, you will buy Cayman’s common stock. What price will you pay if the market’s required rate of return remains constant?

Reference no: EM13919695

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