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Problem 5 The preferred stock of ACE pays a constant $ 1.00 per share dividend. The common stock ACME just paid a $ 1.00 per
Problem 5 The preferred stock of ACE pays a constant $ 1.00 per share dividend. The common stock ACME just paid a $ 1.00 per share dividend, but it is expected to grow at 4% per year forever. BRAVO common stock just paid a dividend of $ 1.00 per share, but its dividend is expected to grow at 10% per year for 5 years and then grow at 4% per year forever. All three stocks have a 12% required return. How much should you be willing to pay for a share of each stock? Which stock will give you the best return? Explain.
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