Praetorian Industries will pay a dividend of $2.50 per share this year and has an an equity cost of capital of 8%.Praetorian's stock is currently trading at $84 per share.By comparing Praetorian with similar firms,an investor expects that its dividends will grow by up to 5% per year.What is the best next step that the investor should take regarding Praetorian's stock?

Question

Quizplus · Accepted Answer

The investor should revise her estimate of Praetorian's dividend growth based on her comparison with similar firms. If she believes the growth rate will be higher or lower than 5%, she should adjust her estimate accordingly. This will help her make a more informed decision about whether to buy, hold or sell Praetorian's stock. The other options (A, B, C, and E) are not the best next step as they do not address the issue of dividend growth estimate, which is a key factor in assessing the value of the stock.

Praetorian Industries Will Pay a Dividend of $2