Business, 06.05.2020 07:34 MayFlowers

Giant Enterprises' stock has a required return of 14.8%. The company, which plans to pay a dividend of $2.60 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent with that experienced over 2009-2015 period, when the following dividends were paid:

Year Dividend per share
2015 $2.45
2014 2.28
2013 2.10
2012 1.95
2011 1.82
2010 1.80
2009 1.73

a. If the risk-free rate is 10%, what is the risk premium on Giant's stock?
b. Using the constant-growth model, estimate the value of Giant's stock. (Hint: Round the computed dividend growth rate to the nearest whole percent.)
c. Explain what effect, if any, a decrease in the risk premium would have on the value of Giant's stock.

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Giant Enterprises' stock has a required return of 14.8%. The company, which plans to pay a dividend...

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