Question
You are considering the purchase of BIG Companys common stock. You anticipate that the company will pay dividends of RM2.00 per share next year and
You are considering the purchase of BIG Companys common stock. You anticipate that the company will pay dividends of RM2.00 per share next year and RM2.25 the following year. You anticipate that after the second year, the dividend is going to grow at a constant rate of 5 percent per year indefinitely. However, you plan to hold the stock for only four years, and you believe that you can sell the stock for RM20.50 per share at that time. If your required rate of return is 12 percent, what is the maximum price that you would pay for a share of BIG Company stock?
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