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    Compute value of the stock today considering dividend payments

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    2) You are provided an estimate of the following information for stock XYZ. You expect to sell the stock one year from now for $26 and expect one more dividend payment before you sell.

    How much are the dividend payment and stock worth today?
    Earnings per share: this year $5.00
    Dividends per share: this year $1.50
    Estimated earnings per share: next year $6.25
    Required rate of return 10%
    Expected sales price in one year $26.00

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    Solution Preview

    The dividend payout ratio is Dividends per share / Earnings per share = 1.5/5 = 0.3
    The expected ...

    Solution Summary

    The solution computes the value of the stock today considering dividend payments.