Investors require a return of 14.8% per year to hold a stock. The stock currently does not pay any dividends and is expected to begin paying a dividend of $1.65 in 3 years from now, then the dividends are expected to grow forever at a constant rate of 8.0%. What’s the stock price?
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Value in 2 years = D3/ (Required rate - growth rate)
Value in 2 years = 1.65/ (14.8% - 8%)
Value in 2 years = $24.26
Value today = 24.26/ (1.148)2
Value today = $18.41
Investors require a return of 14.8% per year to hold a stock. The stock currently does...
Investors require a return of 14.8% per year to hold a stock. The stock currently does not pay any dividends and is expected to begin paying a dividend of $1.65 in 3 years from now, then the dividends are expected to grow forever at a constant rate of 8.0%. What's the stock price? A) $13.74 OB) $16.05 OC) $17.34 D) $18.41 O E) $15.72
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