Investors need a 15% rate of return on Brooks Sisters' stock (rs = 15%).
a. What would the value of Brooks's stock be if the last dividend was D0 = $1.5 and if investors expect dividends to grow at a constant compound yearly rate of (1) - 4%, (2) 0%, (3) 2%, or (4) 13%?
b. Using data from part a, what is the Gordon (constant growth) model's value for Brooks Sisters's stock if the needed rate of return is 15% and the expected growth rate is (1) 15% or (2) 23%? Are these reasonable results? Describe.