Question
In: Finance
Assume Highline Company has just paid an annual dividend of $ 1.03. Analysts are predicting an...
Assume Highline Company has just paid an annual dividend of $ 1.03. Analysts are predicting an 10.4 % per year growth rate in earnings over the next five years. After then, Highline's earnings are expected to grow at the current industry average of 4.8 % per year. If Highline's equity cost of capital is 9.1 % per year and its dividend payout ratio remains constant, for what price does the dividend-discount model predict Highline stock should sell?
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Expert Solution
| rate | 9.1000% | |
| Cash flows | Year | Discounted CF= cash flows/(1+rate)^year |
| - | 0 | - |
| 1.14 | 1 | 1.04 |
| 1.26 | 2 | 1.05 |
| 1.39 | 3 | 1.07 |
| 1.53 | 4 | 1.08 |
| 1.69 | 5 | 1.09 |
| 41.17 | 5 | 26.63 |
stock should sell for = 31.97
jeff jeffy answered 2 years agoRelated Solutions
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