Question:
Company Z-prime is like Z in all respects save one: Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. What is Z-prime's stock price? Assume next year's EPS is $15.
Additional information:
Company Z's earnings and dividends per share are expected to grow indefinitely by 5 percent a year. If next year's dividend is $10 and the market capitalization rate is 8 percent.