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MMM, Inc., announced yesterday that their next annual dividend will be $9 and that future dividends will be decreasing by 7 percent annually. How much
- MMM, Inc., announced yesterday that their next annual dividend will be $9 and that future dividends will be decreasing by 7 percent annually. How much are you willing to pay for one share of this stock if your required return is 17 percent using Gordon Dividend Growth Model? If the stock price is $64 is it under or overvalued?
b. Your firm requires an average accounting return (AAR) of at least 11 percent on all fixed asset purchases. Currently, you are considering some new equipment costing $180,000. This equipment will have a 3-year life over which time it will be depreciated on a straight line basis to a zero book value. The average book value is $90,000. The annual net income from this project is estimated at $12,500, $18,500, and $8,000 for the 3 years. Should you accept this project based on the accounting rate of return? Why or why not?
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