1. Calculate Assets J’s theoretical value of the common stock price. The equation for the Dividend Growth Model is: V = (Current Dividend * (1 + Dividend Growth)) (Required Return – Dividend Growth) where:
V = price of the common stock,
Current Dividend = 8
Required return on common stock = .015
Dividend Growth = .09
2. What are some of the drawbacks using Dividend Growth Model, or any other dividend based pricing model? Explain in detail
3. Company A has a P/E (price/earnings) ratio of 14 and earnings of $5/share. Calculate the price of the stock.
4. Would you ever buy a stock will a low Price/Earnings ratio? Why or why not?