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A stock just paid a dividend of $1.22. The dividend is expected to grow at 28.99% for three years and then grow at 4.85% ther

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Answer #1

D1=(1.22*1.2899)=1.573678

D2=(1.573678*1.2899)=2.029887252

D3=(2.029887252*1.2899)=2.618351567

Value after year 3=(D3*Growth rate)/(Required return-Growth rate)

=(2.618351567*1.0485)/(0.1495-0.0485)

=27.18160017

Hence current value=Future dividend and value*Present value of discounting factor(rate%,time period)

=1.573678/1.1495+2.029887252/1.1495^2+2.618351567/1.1495^3+27.18160017/1.1495^3

=$22.52(Approx).

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