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Suppose that E&P Inc. just paid a dividend of $0.92 a share, and investors were optimistic about the prospects for the company and were forecasting
- Suppose that E&P Inc. just paid a dividend of $0.92 a share, and investors were optimistic about the prospects for the company and were forecasting the earnings to grow over the next 5 years by 10.9% a year. As this was a very high growth rate, investors did not expect it to continue forever and they expected it to grow at a rate of 3.36% afterward forever. Suppose further that the required return for the investors is 5.6%. A.) Calculate what the market price of the companys stock is. B.) Suppose somehow the market had a revision of the growth rate from 6 years on to 4%. What would happen to the companys stock price?
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