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    Stocks and dividends- Stocks and dividends

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    Fasco Industries just paid a dividend of D0 = $1.45. Analysts expect the company's dividend to grow by 28% this year, by 11% in the second, and at a constant rate of 6% in the third year and thereafter. The required return on this low-risk stock is 11.00%. How do you estimate, and from your calculations, what is the best estimate of current market value of the this stock?

    Why are cash flows that are connected to common stock difficult to estimate? How does this compare to those related to bonds.

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    Solution Preview

    Given that,

    Dividend Paid = $1.45

    Dividend growth this year = 28%
    Dividend growth in year 2 ...

    Solution Summary

    This solution is comprised of an explanation of how to estimate a stock's current market value, as well as the relationship between cash flows and common stock.