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Cost of capital of investing in sanderson

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Reference no: EM132245260

Sanderson Farms (SAFM) has just paid an annual dividend of $1.28. Analysts are predicting a 12% per year growth rate over the next 3 years. After year 3, assume that Sanderson's earnings will grow at the industry average of only 4.4% per year.

a.) If the cost of capital of investing in Sanderson is 8.6% per year, estimate the current price for Sanderson using the dividend discount model.

b.) Look up Sanderson's current stock price and compare it to what you calculated. Is the estimate close?

Reference no: EM132245260

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