Suppose ke the required rate of return

Reference no: EM1333401

Common stock value explained in this solution

Friedman Steel Company will pay a divident of $1.50 per share in the next 12 months (D1). The required rate of return (Ke) is 10 percent and the constant growth rate is 5 percent.

a. Compute Po
b. Assume Ke, the required rate of return, goes up to 12 percent; what will be the new value of Po?
c. Assume the growth rate (g) goes up to 7 percent; what will be the new value of Po?
d. Assume D1 is $2.00, what will be the new value of Po?

Reference no: EM1333401

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