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Consider the following three stocks (of the same risk class): Stock A is expected to provide a dividend of 10 a share forever. Stock B
Consider the following three stocks (of the same risk class): Stock A is expected to provide a dividend of 10 a share forever. Stock B is expected to pay a dividend of 5 next year. Thereafter, dividend growth is ex- pected to be 4 percent a year forever. Stock C is expected to pay a dividend of 5 next year. Thereafter, dividend growth is ex- pected to be 20 percent a year for 5 years (i.e., until year 6) and zero thereafter. a) Which stock is the most valuable if the market capitalization rate for each stock is 10 percent? b) What if the opportunity cost of capital is 7 percent
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