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VolCal in at the end of the year is expected to have EPS of $5 the...

VolCal in at the end of the year is expected to have EPS of $5 the firm has a cost of capital of 19% currently pay out of all earnings as a divident using the assumption of perfect capital markets

using the dividend discount model what is the firms expected stock price today?

a. 43.7750
b.58.8835
c.41.666
d.50.2575
e.40.0000
f.45.4545
g. 0%
h. 2%
I 1%
j. 3%
k.60.2675

Solutions

Expert Solution

As per the Dividend discount model

ke-g = D1 /P

Where

Ke is cost of equity

g is growth

D1 is dividend

P is the price

Po = D1/ (ke-g)

The EPS of the firm is 5 and it is paying out all earnings as dividends.

So

D1= 5 per share. Substituting the value

Po = 5/ 0.19 = $ 26.32

jeff jeffy answered 2 years ago
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