Description
Boomer Products, Inc. manufactures �no
-
inhale� cigarettes. As their target customers age
and pass on, sales of the product are expected to decline. Thus, demographics suggest
that earnings and dividends will decline at a rate of 5% annually forever. The firm just
paid a dividend of $4; given a required return is 10%, what is
the current price
of the
stock?
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Explanation & Answer
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Price = 4*(1-.05) / (.10 + .05)
= 25.33
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