Question
Seattle Software Inc. recently paid an annual dividend of $1.95 per share and is expected to grow at a 15% rate indefinitely. Short-term federal government
Seattle Software Inc. recently paid an annual dividend of $1.95 per share and is expected to grow at a 15% rate indefinitely. Short-term federal government securities are paying 4%, while an average stock is earning its owner 11%. Seattle is a very volatile stock, responding to the economic climate two and a half times as violently as an average stock. This is, however, typical of the soft- ware industry. a. How much should a share of Seattle be worth? b. Do you see any problems with this estimate? Change one assumption to something more reasonable and compare the results.
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