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Firm B is a mature firm. The firm just paid a dividend of $10, but management expects to reduce the payout by I percent per
Firm B is a mature firm. The firm just paid a dividend of $10, but management expects to reduce the payout by I percent per year forever. Suppose you require a 10 percent return on this stock. a) How much will you pay for a share today? (10 marks) b) A number of publicly traded firms pay no dividends yet investors are willing to buy shares in these firms. How is this possible? Does this violate our basic principle of stock valuation? Explain. (15 marks)
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