Last Year,ABC Corp

question 79

Essay

Last year,ABC Corp.earned $10 per share and its retention rate was 40%.You require a 12% rate of return on the stock and believe that ABC can realize a rate of return of 15% on its retained earnings.
a. If ABC has just paid its annual dividend, and you are planning to buy and hold forever, what is a share of ABC worth to you now?
b. Assuming that your expectations and the market's expectations are the same, and that these expectations are met over the next thirty years, what will the market price of a share of ABC stock be at the end of thirty years from now?

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