Homework Answers
P0 = D0 * (1 + g) / (Ke - g)
P0 = $3 * (1 + 0.08) / (0.12 - 0.08)
P0 = $81
Current value of the common share = $81
Price at the end of year 1 = [$81 * (1.12) - ($3 * 1.08)
= $90.72 - $3.24
= $87.48
So, current value of common stock = $81
and price at the end of year 1 will be $87.48
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