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You would like to value the following three stocks for investment purposes. The discount rate applicable for all three stocks is 10 percent. What is
You would like to value the following three stocks for investment purposes. The discount rate applicable for all three stocks is 10 percent. What is the value of each stock? a. Stock A is expected to pay a dividend of $5 next year. Thereafter, the dividend growth is expected to be 4 percent a year forever. b. Stock B is expected to pay a dividend of $3 next year. Thereafter, dividend growth is expected to be 20 percent a year for 5 years (i.e., until year 6) and zero thereafter. c. Stock C is not expected to pay any dividends in the next three years. It will start paying dividends in year 4 and the initial dividend is expected to be $4. The dividends are expected to grow at rate of 10 percent a year for the next two years (i.e., until year 6). Thereafter, the dividends will grow at a rate of 3 percent a year for ever
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