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Question 3 STC announced yesterday that their next annual dividend will be SAR 5 and that future dividends will be increasing by 8 percent annually.

Question 3

STC announced yesterday that their next annual dividend will be SAR 5 and that future dividends will be increasing by 8 percent annually. How much are you willing to pay for one share of this stock if your required return is 12 percent? If the stock price is SAR 70, is the stock under or overvalued? Calculate dividend yield? What is your recommendation for buying or not the stock according to available information?

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