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Firm’s Dividend

Watch the following video (you can stop around the 26 minute mark unless you are fascinated by the topic and want to learn more).

https://analystprep.com/cfa-level-1-exam/equity/price-multiples/ (Links to an external site.)

Answer the following questions:

1. A firm pays a current dividend of $1.25. The firm’s earnings are $3.20 per share and the firm’s ROE is 9.1%. This firm has a required return on equity of 11.9%. Compute the price of this share of common stock.

2. A firm is expected to have super high growth during the next three years because of a patent. The board expects to pay a $2.35 dividend exactly one year from today and those dividends should double during the subsequent two-year period. Normal growth rates apply after the high growth period of 4.1%. This firm has a required return on equity of 13.4%. Compute the price of this share of common stock.

3. Read the following article and any others you might find:

https://www.globenewswire.com/news-release/2020/10/21/2112253/0/en/Armstrong-World-Industries-Declares-Increased-Cash-Dividend-for-Third-Quarter-2020.html (Links to an external site.)