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Your boss, Tommy Jones, treasurer of Tommy Jones Inc. (TJI), asked you to help him estimate the intrinsic value of the company's stock. TJI just
Your boss, Tommy Jones, treasurer of Tommy Jones Inc. (TJI), asked you to help him estimate the intrinsic value of the company's stock. TJI just paid a dividend of $1.00, and the stock now sells for $12.50 per share. Tommy asked a number of security analysts what they believe TJI's future dividends will be, based on their analysis of the company. The consensus is that the dividend will be increased by 12% during Years 1 to 3, and it will be increased at a rate of 4% per year in Year 4 and thereafter. Tommy asked you to use that information to estimate the required rate of return on the stock, rs. Please explain how you get the answer and show your work. If you do not, you will not earn full credit
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