Horse and Buggy Inc. Is in a declining Industry. Sales, earnings, and dividends

Question

Horse and Buggy Inc. Is in a declining Industry. Sales, earnings, and dividends are all shrinking at a rate of 8% per year. a. If r= 12% and DIVI $6, what is the price of a share? (Do not round intermediate calculations.) Price of a share b. What price do you forecast for the stock one year from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price c. What is the cost of capital on the stock? (Do not round intermediate calculations.) Cost of capital -%

Explanation / Answer

b)

One year from now

c)Cost of capital will be 12% i.e required return

r 0.12 g -0.08 D1 5.52 Price 27.60

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