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    Compute the present value of a Stock based on dividend payments

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    Firm X is expected to pay its first annual dividend 5 years from now. That payment will be $3.10 a share. Starting in year 6, the company will increase the dividend by 2 percent per year. The required return is 15 percent. What is the value of this stock today?
    1. $11.86

    2. $12.09

    3. $13.63

    4. $14.66

    5. $15.71

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    Solution Preview

    The value of the stock is the present value of all dividends. The dividend in year 5 D5 = 3.10 ...

    Solution Summary

    The solution computes the present value of a stock based on dividend payments.