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A stock just paid an annual dividend of $2.2. The dividend is expected to grow by 8% per year for the next 3 years. The
A stock just paid an annual dividend of $2.2. The dividend is expected to grow by 8% per year for the next 3 years. The growth rate of dividends will then fall steadily (linearly) from 8% after 3 years to 5% in year 6. The required rate of return is 12%.
A) What is the current stock price if the dividend growth rate will stay 0.05 (5%) forever after 6 years?
B) In 6 years, the P/E ratio is expected to be 25 and the payout ratio to be 80%. What is the current stock price when using the P/E ratio?
*Please provide formulas in Excel*
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