Question
Background: ABC Corporation does not currently pay cash dividends on their common stock, but they are expected to pay a 65 cent per share cash
Background:
ABC Corporation does not currently pay cash dividends on their common stock, but they are expected to pay a 65 cent per share cash dividend 5 years from today. The growth rate of the dividends is expected to be 25% per year for the following 10 years (from t = 5 to 15). Thereafter, dividends are expected to shrink at 3% per year forever. The appropriate discount rate given the risk of the stock is E[r] = 9%EAR.
Part A:
Determine the size of the cash dividend that is paid 15 years from today. Enter a value with at least 4 digits of precision.
Part B:
Determine the size of the cash dividend that is paid 16 years from today. Enter a value with at least 4 digits of precision.
Part C:
Determine the size of the cash dividend that is paid 20 years from today. Enter a value with at least 4 digits of precision.
Part D:
Determine the fair price of the stock today.
Part E:
What is the fair price of the stock immediately after the dividend is paid at t = 15?
Part F:
What is the fair price of the stock immediately before the dividend is paid at t = 15?
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