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Question 4[20 points] Suppose we have the following information available about a firm: the required rate of return of its stock =12%; currently its stock
Question 4[20 points] Suppose we have the following information available about a firm: the required rate of return of its stock =12%; currently its stock is worth $40 /share; dividend is $1/ share at " 0 " and will increase by 30%/ year during the following 4 years; starting from the beginning of Year 5, dividend will increase by G%/ year infinitely. [A]. Express P4 as a function of G and then express the present value of P4 as a function of G. [8 points] [B]. Express the current stock price, $40/ share, as a function of G. [8 points] [C]. Calculate G. [4 points]
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