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    Friedman Steel - Valuation of common stock

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    24) Friedman Steel Company will pay a dividend of $1.50 per share in the next 12 months (D1). The required rate of return (Ke) is 10 percent and the constant growth rate is 5 percent.

    a. Compute Po

    For parts b,c, and d in this problem all variable remain the same except the one specifically changed. Each question is independent of the others.)

    b. Assume Ke, the required rate of return, goes up to 123 percent, what will be the new value of Po?

    c. Assume the growth rate (g) goes up to 7 percent; what will be the new value of Po?

    d. Assume D1 is $2, what will be the new value of Po?

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    Solution Preview

    Friedman Steel Company will pay a dividend of $1.50 per share in the next 12 months (D1). The required rate of return (Ke) is 10 percent and the constant ...

    Solution Summary

    This post explains how to value common stock.

    $2.19

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