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1. Suppose XZY Corp. just paid a dividend of $0.60. The firm has a payout ratio of 20%,...

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Posted July 24, 2013 at 9:13 AM via web

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1. Suppose XZY Corp. just paid a dividend of $0.60. The firm has a payout ratio of 20%, and its dividends are expected to grow in perpetuity at 16%. You estimate that its market capitalization rate is 17%.

(a)   At what price should the stock of XZY sell if it is priced by the constant dividend growth model?

(b)   Decompose the price into PVGO and the present value of Assets-in-Place.

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