Compute the stock price

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1. You are evaluating a stock which just paid $3.00 per share dividend (D0) and its dividend payout ratio was 60%. The firm's ROE is 20%, the market capitalization rate is 15%. Assume the situation is expected to continue indefinitely unless it is stated otherwise.

a. Compute the stock price.

b. Compute its P/E ratio and P/B ratio.

c. Financial analyst changes the firm's projected growth rates: Earnings and dividends are expected to grow 20% a year for the next 6 years and, from year 6, they will grow at the normally expected rate (that is implied in the original statement). Compute the stock price by using the two-stage growth model.

Reference no: EM132491409

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