Identification of a formula that applies to the valuation

Question

Write a brief overview concerning stock valuation.  Your overview should include:

• A brief explanation of the legal rights and privileges of common stockholders.

• Identification of a formula that applies to the valuation of all stocks.

• An explanation of what constitutes a “constant growth stock” and how it is valued.

Complete the following stock value calculations: Assume that XYZ is a constant growth company whose last dividend was $2.00 with the dividend expected togrow at 6% indefinitely. Calculate the following:

• The expected dividends for the next three years

• The current stock price

• The expected value in one year

• The dividend yield, capital gains yield, and total return during the first year

Now assume that XYZ is expected to grow 30% for the next three years and then grow indefinitely at 6%.  Calculate the following:

• The current stock price

• The dividend yield and capital gains yield in the first year

Now assume that XYZ is a constant negative growthcompany whose last dividend was $2.00 with the dividend expected to grow at-6% indefinitely. Calculate the stock price. Wrap up your analysis by explaining why investors would be willing to purchase the stock.