Gentleman Gym just paid its annual dividend of $3 per share, and it is widely expected that the dividend will increase by 5% per year indefinitely.
a. What price should the stock sell at? The discount rate is 15%.
b. How would your answer change if the discount rate were only 12%? Why does the answer change?
c. What is the estimated stock price if the dividend is expected to decrease by 5% per year indefinitely and the discount rate is 15%?