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Please help me to solve these questions!! Homework #2: Stock Valuation and Cashflow Analysis 1. In a simple example, where current stock price So =
Please help me to solve these questions!!
Homework #2: Stock Valuation and Cashflow Analysis 1. In a simple example, where current stock price So = P1, where r is the discount rate and g is the dividend growth rate. A. (10 points) If D= $1, r = 10%, and g = 5%, what is the current stock price (S.)? B. (10) what is the stock price at the end of year 5? C. (10) At the end of year 5, investors suddenly become more optimistic about the company and revise their expected annual rate of return on the shares i.e., r) from 10% to 8% on a permanent basis. If dividends continue its original path of 5% annual growth rate, what is the stock price at the end of year 5? D. (10) Following (A), if at the end of the 3rd year the company unexpectedly goes bankrupt and gets liquidated, shareholders receive $2 per share as the final distribution, what is the cumulative rate of return on the shares over the 3-year All dividends and distributions period? Hint: 3-year cumulative rate of return = Original share priceStep by Step Solution
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