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A. IBIS Corporation has had dividends grow from $2.50per share to $6.50 per share over the last 10years (the $6.50 per share dividend was paid yesterday; that is, D0= $6.50). This compounded annual growth rate in dividends is expected to continue into the future forever. If the current market price of IBIS’s stock is $45.00 per share, what rate of return do investors expect to receive from buying IBIS stock?

B. Phillips, Inc. just paid a dividend of $3.25 per share on its common stock (that is, D0= 3.25). Investors expect the dividend to grow at 40% in years 1 and 2, they expect the dividend to grow at 20% in year 3 and they expect that all future dividends (that is, dividends in years 4, 5, ...,infinity) to grow at a constant rate of 5% per year. If the cost of capital for Phillips, Inc. stock is 15%, what is the current price of the stock?

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Casey Durgan
Casey DurganLv2
28 Sep 2019

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