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The most recently paid dividend by Bridges & Associates was $0.625 per share. Its dividend is expected to grow at 20%, 25% and 35% during
The most recently paid dividend by Bridges & Associates was $0.625 per share. Its dividend is expected to grow at 20%, 25% and 35% during the coming 3 years. But after 3 years, dividend growth will slow down to a constant rate of 6% per year. The required rate of return on the stock of Bridges & Associates is 10%.
- What is the value of the stock today?
- What is the value of the stock 5 years from today?
- If market is in equilibrium, what would be the total return earned on the stock in year 1?
- If market is in equilibrium, what would be the expected dividend yield and capital gains yield for Year 5?
- If an investor who purchased the stock at its current price expects to earn a total return of 12%. Is the stock currently over-valued or under-valued? Explain.
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