XYZ Ltd has expected earnings per share of $5. It has a history of paying cash dividends of equal to 20% of earnings. The market capitalization rate for XYZ’s stock is 15% per year and the expected ROE on the firm’s future investment is 17% per year. Using constant growth rate discounted dividend model find:
1) the expected growth rate of dividends
2) the model’s estimate of the present value of the stock
3)if the model is right, what is the expected price of a share a year from now?