Question
1) This year, Midland Light and Gas (ML&G) paid its stockholders an annual dividend of $1.75 a share. A major brokerage firm recently put out
1) This year, Midland Light and Gas (ML&G) paid its stockholders an annual dividend of $1.75 a share. A major brokerage firm recently put out a report on ML&G predicting that the companys annual dividends would grow at the rate of 5% per year for each of the next seven years and then level off and grow at 3% thereafter. 1. Use the variable-growth DVM and a required rate of return of 8.6% to find the maximum price you should be willing to pay for this stock. 2. Redo the ML&G problem in part a, this time assuming that after year 7, dividends stop growing altogether (for year 8 and beyond, ). Use all the other information given to find the stocks intrinsic value. 3. Contrast your two answers and comment on your findings. How important is growth to this valuation model
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