1 pt 1 of 5 Assume Pal Cola Co. has a share price of S4377 The firm wil pay a di

Question

1 pt 1 of 5 Assume Pal Cola Co. has a share price of S4377 The firm wil pay a dividend of $1.38 n one year, and you expect Cola Co tonaise this dvidend by spprom a. f Cola Co's equity cost of capital is 84%, what share price would you expect based on your essmate of the dividend growth rate? b. Given Cola Co's share price, what would you condlude about your assessment of Cola Co's future dividend grown? 6.3% per yer i, perpetuity b. Given Cola Co's share prion, what would you condlude about your assessment of Cola Co's uture dvidend growth? aven Cola Cossere price today, tsdiedendgrown rate should bo%(Round to two decnnal places) 888, 2 3 caps lock

Explanation / Answer

1. The stock price should be D1/ (WACC- g)

= 1.38*106.3%/ (8.4%-6.3%)

= $69.85

2. Given the share price of 43.77, the equation will be

43.77= 1.38*(1+g)/ (0.084-g)

3.67668-43.77g = 1.38 + 1.38g

45.15g = 2.29668

g = 5.09%

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