Common stock value: Constant g

Common stock value: Constant growth Christine Law is the Chief Investment Officer for Elite Investment Company. She is now calculating the equity value of Rays Food Company. In 2018, Elite paid a dividend of $5 per share. By 2022, that dividend had grown to $5.72 per share. The company paid $5.15, $5.40, and $5.62 per share in 2019, 2020, and 2021, respectively.

What is the growth rate for each year? Calculate the average growth rate of the stock. In 2022, the company paid the $5.72 dividend. Christine believes that the company’s dividends will grow constantly at the average growth rate calculated. If the required return is 10%, what is the value of the stock?

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Common stock value: Constant g

Common stock value: Constant growth Blix Net services provides dedicated server facilities for small businesses. The company paid per share dividends of €1.21, €1.37, €1.46, €1.61, €1.76, and €1.87, respectively, in the six years spanning 2015 to 2020. The firm’s dividend per share in 2021 is expected to be €2.02.

a. If you can earn 10% on similar-risk investments, what is the most you would be willing to pay per share in 2020, just after the €1.87 dividend?

 b. If you can earn only 12% on similar-risk investments, what is the most you would be willing to pay per share?

c. Compare and contrast your findings in parts a and b, and discuss the impact of changing risk on share value.

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