Jane’s sister-in-law, a stockbroker at Invest, Inc., is trying to get Jane to buy the stock of HealthWest, a regional HMO. The stock has a current market price of $25, its last dividend (D0) was $2.00, and the company’s earnings and dividends are expected to increase at a constant growth rate of 10%.
What is the company’s required rate of return?
How does the required rate of return change if the expected growth drops to 7%?
Using the required rate of return calculated in a, what is the company’s stock price in 20 years?
Healthy Supplies, an investor-owned healthcare supply chain, just paid a dividend (D0) of $4.57 per share. The current price of the stock (P0) is $43 per share. The firm’s required rate of return is 12%.
What is the stock’s constant growth rate?
How does the expected growth rate change if the required rate of return drops to 9%?
Using the expected growth rate calculated in a, what is the company’s stock price in 10 years?