Praetorian Industries will pay a dividend of $2.50 per share this year and has 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 since they expect that it could grow up to 5% per year. This will help the investor make a better investment decision regarding Praetorian's stock. Selling, shorting, or revising Praetorian's equity cost of capital are not appropriate actions based on the given information.

Praetorian Industries Will Pay a Dividend of $2