What is the maximum price

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-The Baron Basketball Company (BBC) earned $ 10 a share last year and paid a dividend of $6 a share. Next year, you expect BBC to earn $11 and continue its payout ratio. Assume that you expect to sell the stock for $132 a year from now.

-If you require 12 percent on this stock, how much would you be willing to pay for it?

-Given the expected earning and dividend payments in Problem 4, if you expected a selling price of $110 and required an 8 percent return on this investment, how much would you pay for the BBC stock?

-Over the long run, you expect dividends for BBC in Problem 4 to grow at 8 percent and you require 11 percent on the stock. Using the infinite period DDM, how much would you pay for this stock?

-Based on new information regarding the popularity of basketball, you revise your growth estimate for BBC to 9 percent. What is the maximum P/E ratio you will apply to BBC, and what is the maximum price you will pay for the stock?

Reference no: EM133062291

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