What is the value that each analyst puts on the firm

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Question - Three stock analysts make the following predictions about the future dividends of the PTSY company:

1. Analyst A predicts that it will pay an annual dividend of $15 forever.

2. Analyst B predicts that it will pay a dividend of $7.5 per year next year. After that, she expects the growth rate in dividends to be 5% a year forever.

3. Analyst C predicts that it will pay a dividend of $7.5 per year next year. After that, he expects dividend growth will be 12% for 5 years (i.e., years 2 to 6 inclusive) with zero dividend growth after that.

a. If the company's cost of equity is 10%, what is the value that each analyst puts on the firm?

b. How would your answer to (a) change if the cost of equity were 7%?

c. Briefly explain the difference between your answers to (a) and (b).

Reference no: EM132979116

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