In: Finance
how will the price of a stock be affected if the growth rate is increased
Stock Price :
The price is a reflection of the company's value – what the public
is willing to pay for a piece of the company. It is nothing but
present value of cash flows ( Div & Sale Price of Stock at
future date) from it.
P = D0( 1 + g) / [ Ke - g ]
D0 - Div today
P0 - Price Today
Ke - Required Ret
g - Growth rate
If the growth Rate is increased, Numerator will increase and denominator will decrease. Hence price of stock will increase.