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ABC, Inc. just paid a dividend of $2.50 per share. The dividends are expected to grow...

ABC, Inc. just paid a dividend of $2.50 per share. The dividends are expected to grow for the next 3 years at 8% per year, then grow at 3% per year forever. The required rate of return for ABC stock is 12% per year. a) What should the market price of ABC stock be? b) What should the ex-dividend stock price of ABC be in year 2? c) If you purchased the share of ABC at time 2, at the price you calculated in b), and held it for one year, what should the return on investing in ABC stock be? What portion of that return comes from dividends, and what portion from capital gain? d) What is the ex-dividend stock price of ABC at time 3? What does this value represent?

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jeff jeffy answered 2 years ago
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