The common stock of KLM Co. paid $2.00 as dividends last year
and the dividends are expected to grow at a rate of 30% per year
for the first 4 years. After 4 years, the grow rate decreases to
10% and dividends are expected to grow forever.
a. If the discount rate is 12%, what is the price of the stock
today?
b. If the KLM company’s earnings per share will be $4.00 in year
1, what is the value of growth opportunities?
The common stock of KLM Co. paid $2.00 as dividends last year and the dividends are expected to grow at a rate of 30% pe
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