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Consider company ABC. Its next years dividend per share is projected to be $6, and after that the dividend is expected to grow indefinitely by
Consider company ABC. Its next years dividend per share is projected to be $6, and after that the dividend is expected to grow indefinitely by 5% a year. This growth comes from the company plowing back some of the earnings to its existing business. Instead, if ABC were to distribute all of its earnings to shareholders, it can maintain a constant level of dividend stream of $10 per share. Assume the market capitalization rate is 10%. How much is the market paying per share for ABCs growth opportunities (that is, what is PVGO)?
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