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Hand in Problem Set 1 Please hand a paper copy and Departmental Cover Sheet of your work to your class teacher at the beginning of
Hand in Problem Set 1 Please hand a paper copy and Departmental Cover Sheet of your work to your class teacher at the beginning of class 4 (week 5). SnapGram, an Appbased technology firm, oated its shares today with an IPO. The prospectus notes that SnapGram does not plan to pay any dividend in the foreseeable future and reported annual earnings of $2 per share (these are the earnings as of today). SnapGram has a Return on Equity of 15%, which is expected to stay the same forever. It is investors' common belief that the appropriate discount rate is 10% and that in 4 years the rm will start distributing a dividend keeping the payout ratio constant after that. SnapGram's closing share price today was $26.28. This trading price is the consensus valuation among investors and analysts. 1. What is the payout ratio in year 4 and beyond implied by investors' valuation? 2. What is the implied PVGO? Show all of your calculations and explain your approach
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