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You believe the Gordon (constant) growth model is appropriate to value the stock of Reliable Electric Corp. The company had an EPS of $3 in
You believe the Gordon (constant) growth model is appropriate to value the stock of Reliable Electric Corp. The company had an EPS of $3 in 2019. The plowback ratio is 0.4. The company is expected to earn an ROE of 17% on its investments and the required rate of return is 12%.
Using the Gordon growth model, the value of the company's stock at the beginning of 2020 most likely is: [Hint: First, calculate the company's sustainable growth rate, then calculate dividend payment of 2019. Then apply the Gordon growth model]
$36.97
$55.32
$31.40
$49.43
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