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Max INC has just released an improved version of its popular sporting products and the world is beating a path to its door. As a
Max INC has just released an improved version of its popular sporting products and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for the next four years. Competition in the product market is expected to drive down profit margins, and hence the sustainable growth rate will fall to 5% after four years. The most recent(i.e. year 0) earnings were $4 per share. The firm has a dividend payout ratio of 25% and its discount rate is 10%.
- What is the value of the stock price today?
- What is the expected stock price four years from now?
- If you decide to hold the stock for one year, at what price can you sell the stock?
- If you buy the stock now and sell it in 1 year, what will be your rate of return?
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