Milford Masonry, Inc. expects to pay a dividend per share of $2.50 next year on its common stock. The firm has enjoyed a 4% annual growth rate over the past decade.
A. If you can earn a 10% rate of return on other investments having similar risk, how much would you be willing to pay per share for Milford Masonry’s stock?
B. Now, assume that you can only earn 6% on similar-risk investments. How much would you now be willing to pay for Milford Masonry’s stock?