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3) Consider two companies: Company A is an older, more established firm, and Company B is a newer firm, with greater potential but more uncertain

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3) Consider two companies: Company A is an older, more established firm, and Company B is a newer firm, with greater potential but more uncertain prospects. Both firms currently pay an annual dividend of $2 per share, but A's dividend is expected to grow at 5% per year, while B's is expected to grow at 8% per year. Yet A's stock price ( $60 /share) is currently higher than B's (\$50/share). Why? (Use the dividend discount model to calculate and briefly explain what's going on here). (1)

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