On a certain date, Harvey Norman has a share price of $37.50, pays a dividend of $0.64, and has an equity cost of capital of 8%. An investor expects the dividend rate to increase by 6% per year in perpetuity. He then sells all the Harvey Norman shares that he owns. Given Harvey Norman's share price, was this a reasonable action?
A)No, since the difference between his calculated share price and the actual share price most likely indicates that his estimate of dividend growth rate was incorrect.
B)Yes, since the constant dividend growth rate gives a share price estimate greater than $37.50.
C)No, since the constant dividend growth rate gives a share price estimate of $37.50.
D)No, since the constant dividend growth rate gives a share price estimate greater than $37.50.

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The Answer of On a certain date, Harvey Norman has a share price of $37.50, pays a dividend of $0.64, and has an equity cost of capital of 8%. An investor expects the dividend rate to increase by 6% per year in perpetuity. He then sells all the Harvey Norman shares that he owns. Given Harvey Norman's share price, was this a reasonable action?
A)No, since the difference between his calculated share price and the actual share price most likely indicates that his estimate of dividend growth rate was incorrect.
B)Yes, since the constant dividend growth rate gives a share price estimate greater than $37.50.
C)No, since the constant dividend growth rate gives a share price estimate of $37.50.
D)No, since the constant dividend growth rate gives a share price estimate greater than $37.50.

On a Certain Date, Harvey Norman Has a Share Price