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( 5 points ) Pepper is a young start - up company. No dividends will be paid on the stock over the next four years
points Pepper is a young startup company. No dividends will be paid on the stock over the next
four years because the firm needs to plowback its earnings to future growth. The company will pay
a $ per share dividend in years and will increase the dividend by percent per year for
years, with the growth rate falling off to a constant percent thereafter. If the required return is
percent. The market price of Pepper is $ per share currently.
a What is the current share price?
b Is the stock overpriced, underpriced, or fair priced? What is your investment strategy on Pepper's
stock?
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