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Stock Price and Dividends

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The Price-Bubble Corporation does not currently pay dividends. You predict that dividend payments will begin in four years and that the first dividend will be $4. The dividend will grow at 12 percent thereafter. If the required rate of return is 25 percent, what is the value of the stock?

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The solution answers the question below and goes into quite a bit of detail regarding dividends.

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First, we need to calculate the present value of the growing dividends. We can use the perpetuity formula with growth to get ...

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