Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a...

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Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a...

Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a dividend of $3.40 per share in 10 years, and you expect dividends to grow perpetually at 4.4 percent per year thereafter. If the discount rate is 11 percent, how much is the stock currently worth?

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Answer 1

Answer #1

Value as on year 10=(D10*Growth rate)/(Discount rate-Growth rate)

=(3.4*1.044)/(0.11-0.044)

=53.7818182

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

=3.4/1.11^10+53.7818182/1.11^10

=$20.14(Approx).

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Answer 2

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Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a...

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