#7 ? 0 Gù ?https:/ #70 Help Seve &Exit; Submit Check my work 14 Trend Une nc. ha

Question

#7 ? 0 Gù ?https:/ #70 Help Seve &Exit; Submit Check my work 14 Trend Une nc. has been growing at a rate of 6% per year and is expected to contin e to do so expected to be $6 per share. de nr . The e in o. If the market expects a 10% rate of return on Trend-line, at what price must it be seeing? eDo not round intermediate calculations 10 polints seling price Hint b. If Trend-Line' celculetions.) s earnings per share will be $9 next year, what part ofits value is due to assets in place? (Do not round intermediate eeenors Trend-Line's value opportunities? (Do not round c. If Trend-Line's earnings per share will be $9 next year, what part of its value is due to growth end-Line's valu ?Prev 14or 14 lli

Explanation / Answer

a) share price using constant dividend growth model can be computed as -

P0 = D1 / (Ke - g)

where, P0 = stock price, D1 = Expected dividend, Ke = required return, g = growth rate

P0 = $6 / (10% - 6%) = $150

b) Value due to assets in place would mean, value or share price as if their is no growth.

P0 = Earnings / Ke = $9 / 10% = $90

c) Value due to growth opportunities = $150 - $90 = $60

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