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9. Perpetual Growth, Inc., has just paid a dividend of $2.00 per share. You expect the dividend to grow forever at a rate of
9. Perpetual Growth, Inc., has just paid a dividend of $2.00 per share. You expect the dividend to grow forever at a rate of 4% per year. a. If you use a 10% discount rate, what is the value today of Perpetual Growth, Inc.? Hint: this problem requires the growing perpetuity formula, also known as the constant growth form of the dividend discount model. This formula is a very useful back-of-the- envelope" way to value predictable cash flows that are growing at a predictably constant rate indefinitely. The formula is P = D/(r-g). Google "growing perpetuity for more details. b. How much of the present value of the stock comes from dividends expected to be received within the next 5 years? c. How much of the present value of the stock comes from dividends expected to be received within the next 10 years?
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