Key drivers affecting the stock price

Calculate the expected stock price for each firm using the constant growth dividend discount model.

Today's dividend is $10. The expected rate of return in the market is 15% and the firm's growth rate is 3%. The firm pays out half of its growth in dividends.

Firm B: Today's dividend is $10. The expected rate of return in the market is 15% and the firm's growth rate is 12%. The firm pays out 10% of its growth as dividend.

Comment on the key drivers affecting the stock price.

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...e is 3%. The firm pays out half of its growth in dividends.

Price = $10 x [(1+3%)/(15% - 3%)]

Price = $85.83

Firm B: Today's dividend is $10. Expected rate of ...