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5) Pacific Corporation just paid an annual dividend of $3.00 per share on its common stock. Dividends are expected to grow at

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Answer #1

Using CAPM Model,

Required Rate = 0.02 + 1.25(0.07)

Required Rate = 10.75%

Using Constant Growth Model,

Stock Price = 3.0(1.015)/(0.1075 - 0.015)

Stock Price = $32.92

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