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ABC Inc. is a growth firm that has just paid $2 per share in dividends (Do). The firm is expected to increase its dividends by
ABC Inc. is a growth firm that has just paid $2 per share in dividends (Do). The firm is expected to increase its dividends by 20% for the next year and by 15% for the year after that. Afterwards, dividends will grow by 10% per year indefinitely. The required rate of return on stocks of similar firms is 15%. Answer the following questions. (SHOW YOUR WORK. Correct answers with no formulas/calculations receive no credit) a) What is the value (price) of the stock today (ie. Po)? Show your work and formulas. b) What is the price of the stock at t=10, assuming the required rate of return (i.e. 15%) and the growth rate of dividends (i.e., 10%) do not change? Show your work and formulas
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