1-The Baron Basketball Company (BBC) earned $10 a share last year and paid a dividend of $6 a share. Next year, you expect BBC to earn $11 and continue its payout ratio. Assume that you expect to sell the stock for $132 a year from now. If you require 12 percent on this stock, how much would you willing to pay for it.
2-Given the expected earnings and dividends in problem1, if you expect a selling price of $110 and require an 8 percent return on this investment, how much would you pay for this stock?