Question
A) Suppose a company is going to grow very, very slowly for the next 2 years: 1% per year. Then it will rise to 7%
A) Suppose a company is going to grow very, very slowly for the next 2 years: 1% per year. Then it will rise to 7% a year for three years before going to a constant rate of 4%. If D0 was $3.50 and the market requires an 8% rate of return on this stock, what price should it be selling for?
B) Suppose a company is going to grow very, very rapidly for the next 3 years: 150% per year. Then it will drop to 70% a year for three years before going to a constant rate of 4%. At the end of the supernormal growth period, what would be the future price of all the dividends past the supernormal growth period if D0 was $1.00 and we require a 12% rate of return?
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