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2) Stocks of mature firms that grow at a predictable constant rate can sometimes be valued as a present value of a growing perpetuity. It
2) Stocks of mature firms that grow at a predictable constant rate can sometimes be valued as a present value of a growing perpetuity. It uses next periods cash flow to equity (CF1), growth rate(g) and the cost of equity (r) as the discount rate (i.e., PV=CF1(1+g)/(r-g)). The next periods cash flow to equity is 1250, steady-state growth rate is 2.5% and the cost of equity is 8%. What is the value of the firms equity?
a) 23,295
b) 70.5
c) 795
(PLEASE PROVIDE ANSWER WITH MATCHING LETTER CHOICE)
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