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Consider the following three stocks: Stock A is expected to provide a dividend of $10.20 a share forever. Stock B is expected to pay a dividend of...


Consider the following three stocks:
 
a.

Stock A is expected to provide a dividend of $10.20 a share forever.

b.

Stock B is expected to pay a dividend of $5.20 next year. Thereafter, dividend growth is expected to be 6% a year forever.

c.

Stock C is expected to pay a dividend of $5.20 next year. Thereafter, dividend growth is expected to be 22% a year for five years (i.e., until year 6) and zero thereafter.

  
 

a-1.

If the market capitalization rate for each stock is 12%, what is the stock price for each of the stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
a) b) c) Stock Price Stock Price i) ii) =

 

= D/Ke

 

$ =

 

= D1/(ke-g)

 

$

 

86.67 Year

 

Dividend

 

Discount Factor

 

Present Value $ 1

 

5.20 $

 

0.893

 

4.64 $ =

 

= Where,

 

D1

 

Ke

 

g =

 

=

 

= 2

 

6.34 $

 

0.797

 

5.06 $ Present...

 


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Oct 15, 2019

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