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Firm X is expected to increase its dividend by 5% per year indefinitely. Next years dividend is expected to be 10. Investors expect a return
Firm X is expected to increase its dividend by 5% per year indefinitely. Next years dividend is expected to be 10. Investors expect a return of 8% on firms with a similar level of risk. What will be the current stock price? Firm Y has a similar level of risk to X. It pays out all its earnings as dividends. However its earnings will only grow like Xs to Year 4, after that it will pay out all its earnings which will be constant. Next years earnings per share are 15. What will be the current stock price?
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