Question
Network Systems is a tech company that is expected to experience short-term supernormal dividend growth rates of 50% in year 1, 40% in year 2
Network Systems is a tech company that is expected to experience short-term supernormal dividend growth rates of 50% in year 1, 40% in year 2 and 25% in year 3. After 3 years of supernormal growth, this company's dividend is expected to grow at a constant rate of 5%. However, in most recent month, analysts have made downward projections on its short-term growth rates to 35% in year 1, 26% in year 2 and 15% in year 3, and a long-term constant growth rate of 5% due to the uncertainty of the world economy. If the most recent dividend paid is $2 per share and its required return remains at 15%, approximately how much do you expect the reduction in Network Systems stock price per share today? (3.5 points)
A) $20.91
B) $17.93
C) $15.34
D) $10.98
E) $4.22
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