1. Under the dividend-discount model, what is the value of a share of stock that is expected to pay a $7.50 end-of-year dividend and have an ex-dividend price of $55 if the risk-adjusted discount rate is 7.5%?
2. CGC has expected earnings per share of $5. It has a history of paying cash dividends equal to 20% of earnings. The market equalization rate for CC stock is 15% per year and the expected ROE on the firm's future investments is 17%. Using the discount dividend model:
a) expected growth rate of dividends?
b) model's estimate of the present value of the stock
c) if the model is right, what is the expected price of a share of a year by now?
d) suppose that the current price of a share is $50. By how much would you have to adjust each 1) the expected ROE 2) market capitalization rate 3) the dividend payout ratio