P0 = D1 / (r-g)
D1 = P0 (r-g)
D1 / P0 = r-g
Then sub in your values in the reworked Gordon formula:
2.70 / 27 = (0.12-g)
0.10 = 0.13 - g
g = 0.13 - 0.10 = 0.03 = 3% as to problem 1 (answer b.)
I can't help you as to problem #2.
i cannot calculate several problems that i hope you guys can help me
1. a company's common stock is currently trading for 27.00 per share the stock is expected to pay 2.7 dividends at the end of the yr. the equity cost of capital is 13% what is the expected growth rate?
a.1.5% b. 3% c. 6% d. 4.5%
2.a company will pay a div of 1.80 per share at this years end and a div of 2.40 per share at the end of next year. it is expected that the price of the stock will be 44.00 per share after two yrs. it has an equity cost of cap of 8% whawt is the max price that an investor is willing to pay for a share?
a. 41.45 b.40.22 c. 42.40 d. 39.27
