What is the theoretical stock price

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Reference no: EM132036717

Stock Valuation (SOLVE WITHOUT EXCEL)

A stock of LOLLocker Inc. just payed $4 in dividends today and reported $5 of earnings per share. At t=1 and t=2 the firm makes an investment, as a result of which, just 40% of earnings are distributed as dividends. After this, all earnings will be distributed as dividends with a growth of 5%. The investment has a return of 30%.

a) What’s the annual growth when the investment is made?

b) What is the theoretical stock price?

C) Show that the NPV of investments is the difference in the prices you calculated in parts (a) and (b).

Reference no: EM132036717

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