Question
Galega Company expects to pay dividends of $2.20, $2.42, and $2.66 in one, two and three years, respectively. After that, dividends are expected to grow
Galega Company expects to pay dividends of $2.20, $2.42, and $2.66 in one, two and three years, respectively. After that, dividends are expected to grow at a constant rate of 5% forever. Stocks of similar risk currently provide a required rate of return of 9%. You believe that after 3 years, inflation will decrease by 1% so you will require a rate of return after year 3 that reflects this changed inflation expectation. What should the price of Galega Company stock be today?Galega Company expects to pay dividends of $2.20, $2.42, and $2.66 in one, two and three years, respectively. After that, dividends are expected to grow at a constant rate of 5% forever. Stocks of similar risk currently provide a required rate of return of 9%. You believe that after 3 years, inflation will decrease by 1% so you will require a rate of return after year 3 that reflects this changed inflation expectation. What should the price of Galega Company stock be today?
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