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.

D1= 5 per share. Substituting the value

Po = 5/ 0.19 = $ 26.32

jeff jeffy answered 1 year ago

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