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Question 5: Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, dividends
Question 5: Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, dividends are expected to grow at a 25% rate for three years, then the competition will drive down profit margins and the sustainable growth rate will decline to a constant rate of 5%. The next year's dividend is expected to be $4.00. Suppose that the stock's required return is 13%. a. What is the expected price of Better Mousetraps stocks at the end of year 3? b. What is the expected price of Better Mousetraps stocks today? If the stocks of Better Mousetrap stocks are selling at the market for $65, will you buy this company's stocks? Why or why not? C
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