Sustainable growth rate in perpetuity

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Reference no: EM131303593

You believe that investors in Home Depot have an 10% cost of equity. Analysts’ currently expect Home Depot to earn $6.30 per share in exactly one year. After one year you expect Home Depot to grow at its sustainable growth rate in perpetuity. You expect Home Depot to pay out 40% of earnings as dividends and to have a return on equity of 14% each year forever. If Home Depot has the same payout ratio and growth rate forever, what price do you expect Home Depot to trade at today?

Reference no: EM131303593

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