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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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    Solution Preview

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

    Solution Summary

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