What is the abc stock price today

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ABC Inc. expects earnings this year of Rs.5 per share. It plans to pay Rs.2 per share as dividends and retain Rs.3 per share to reinvest in new projects with an expected return on equity of 15% per year. (ABC can assume that it faces an unlimited supply of these investment opportunities.)

Suppose ABC will maintain the same dividend pay-out ratio and return on new investment in the future. Assume the dividend discount model with a constant sustainable growth rate. ABC's cost of equity capital is 12%

a) What is the ABC stock price today?

Given all the assumptions, what pay-out ratio will maximize the stock price of ABC? Explain briefly

Reference no: EM133000217

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