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Suppose that Facebook, Inc. (FB) is selling for $220.00. Analysts believe that the growth rate for FB will be 15% per year for the next
Suppose that Facebook, Inc. (FB) is selling for $220.00. Analysts believe that the growth rate for FB will be 15% per year for the next three years, 10% per year for the following two years, and thereafter the growth rate will be 8% indefinitely. FBs most recent cash dividend per share was $5.00. The dividend will grow by the same rate as the company. Stockholders require a return of 10 percent on FBs common stock.
- Based on the above assumptions, determine the price of FBs common stock.
b. Explain whether an investor should buy the stock.
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