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Problem 4 - Weight 30 points Assume a stock that is expected to benefit from supernormal growth of 8% in dividends per year over the
Problem 4 - Weight 30 points Assume a stock that is expected to benefit from supernormal growth of 8% in dividends per year over the next six years. Following this period, dividends are expected to grow at a constant rate of 3% per year forever. The stock paid a dividend of 5.50 last year. Dividends are paid to shareholders once a year, the next payment is due one year from today, the second payment two years from today, etc. The required rate of return on the stock is 10%. Please provide numerical answers to the questions below: (a) (10 points) What is the stock's fair present value? (b) (10 points) What is the contribution of growth to the stock's fair present value? (c) (10 points) In terms of the stock's fair present value, what is the implication of lowering the growth estimate from 8% to 3%
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