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Modular Systems Inc: The Expected Value of the Next Dividend

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Modular Systems Inc. just paid dividend D0, and it is expecting both earnings and dividends to grow by 0% in year 2, by 5% in year 3, and at a rate of 10% in year 4 and thereafter. The required rate of return on Modular is 15%, and it sells at its equilibrium price, P0 = $49.87. What is the expected value of the next dividend, D1?

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Solution Summary

This tutorial provides the steps to find the expected value of a next dividend based on a required rate of return of 15%.

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The equilibrium price is the present value of all the future cash flows associated with the stock, thus, we ...

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