Consider the following three stocks: a) Stock A is expected to provide a dividend of $10 a share forever.
b) Stock B is expected to pay a dividend of $5 next year. Thereafter, dividend growth is expected to be 4% a year forever.
c) Stock C is expected to pay a dividend of $5 next year. Thereafter, dividend growth is expected to be 20% a year for five years (i. e., until year 6) and zero thereafter. If the market capitalization rate for each stock is 10%, which stock is the most valuable? What if the capitalization rate is 7%?

Value of stock =$100

Value of stock B=$83.33

Value of stock C = $104.51

Step-by-step explanation:

Stock A

A dividend of $10 a share forever is a perpetuity.

PV of a perpetuity =Cf/ke

where CF is the cash-flow expected per compounding period = $10

           ke=return on investment or market capitalization rate=0.1

Value of stock A =10/0.1=$100

Stock B

Given D1=$5, g = 4% forever- this stream of cash-flows can be valued using the constant growth model where

PV=D1/ke-9

where D1 is the dividend expected at the end of year 1 = $5

            ke is the return on investment or market capitalization rate = 0.1

            g is the growth rate = 0.04

Value of stock B=5/0.1-0.04=$83.33

Stock C

The stock dividends  have two distinct growth periods, the 1st 6 years where g= 20% and after that, zero growth

Price of the stock C =

where P6=D7/ke=D6/ke

Price of the stock C =

=$104.51

Stock C is more valuable as it has a higher present value of cash flows.

step-by-step explanation:

circumference divided by 3.141592654 then timesthe radius twice

sas (side angle side)

aa (angle angle)

sss(side side side)

sas find two sides with an angle in between

aa is finding two angles and the third will add up to 180

sss find all sides

step-by-step explanation: