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Changes in Growth and Stock Valuation Consider a firm that had been priced using a 10.00...

Changes in Growth and Stock Valuation Consider a firm that had been priced using a 10.00 percent growth rate and a 15.00 percent required rate. The firm recently paid a $1.10 dividend. The firm has just announced that because of a new joint venture, it will likely grow at a 12.00 percent rate. How much should the stock price change (in dollars and percentage)?

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Answer #1

Price before change = ($1.10 × 1.10) / (0.15 - 0.10) = $24.20

Price after change = ($1.10 × 1.12) / (0.15 - 0.12) = $41.07

Change in dollars = $41.07 - $24.20 = $16.87

Percentage change = $16.87 / $24.20 = 69.71%

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