Question
Assume that the average firm is expected to grow at a constant rate of 10% with a dividend of 5%. One company in particular is
Assume that the average firm is expected to grow at a constant rate of 10% with a dividend of 5%. One company in particular is about as risky as the average firm in the industry, but has just developed a line of innovative new products that lead analysts to expect its earnings and dividends will grow at a rate of 40% this year and 25% the following year, after which growth should match the 10% industry average rate. The last dividend paid $3. As an investor watching this stock, what would you expect the current price per share to be AFTER analysts are informed of its innovative new line of products and the expected impact that will have on earnings and dividend growth?
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