Author Question: Assume that the average firm in your company's industry is expected to grow at a constant rate of ... (Read 63 times)

cartlidgeashley · **on:** Apr 25, 2021

Question 1

An increase in a firm's market risk should be reflected in what part(s) of the Gordon growth model?
◦ The dividend growth rate
◦ The required return
◦ Next year's dividend

Question 2

Assume that the average firm in your company's industry is expected to grow at a constant rate of 5%, and its dividend yield is 4%. Your company is about as risky as the average firm in the industry, but it has just developed a line of innovative new products which leads to expect that its earnings and dividends will grow at a rate of 40% this year and 25% the following year, after which growth should match the 5% industry average rate. The last dividend paid was $2. What is the value per share of your firm's stock?
◦ $42.60
◦ $82.85
◦ $91.88
◦ $101.15
◦ $110.37

Kimmy · **Reply #1 on:** Apr 25, 2021

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