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    Expected Stock Price with Growth

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    Constant growth stock valuation Fletcher Company's current stock price is $ 36, its last dividend was $ 2.40, and its required rate of return is 12 percent. If dividends are expected to grow at a constant rate, g, in the future, and if rs is expected to remain at 12 percent, what is Fletcher's expected stock price 5 years from now?

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    Solution Preview

    P0 = 36
    D0 = 2.40
    Rs = 12%

    Since the DDM formula is
    P0 = D0*(1+g)/(Rs-g)
    36 = ...

    Solution Summary

    This solution shows step-by-step calculations to determine the dividend and stock price 5 years from now.