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Question 1 a) FitBit just paid an annual dividend of $2.00. Dividends are expected to grow at a 10% rate for 2 years and then
Question 1 a) FitBit just paid an annual dividend of $2.00. Dividends are expected to grow at a 10% rate for 2 years and then at a 2% rate thereafter. (Always write down the formulas used for your computations.] i) If the required return for FitBit is 7.5%, how much will you pay for the stock? (15 marks) ii) What if the required return is 8.5%? (10 marks) iii) Given the results obtained in part i) and ii), would you buy the stock at a market value of $40? Having the chance to buy or sell the stock at its market value, being able to resell it tomorrow at its intrinsic value, would you buy or sell the stock following the results in part i)? What about part ii)? (15 marks) iv) Discuss the differences between the dividend discount, the constant growth and the multistage dividend discount models. (10 marks)
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