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SPF company has just paid a dividend of $3.00 on its stock. The growth rate in dividends is expected to be a constant 7.7% per year, indefinitely. Investors require an 18% return on the stock for the first 3 years, a 12% return for the next 3 years and then a 13% return thereafter. What is the current share price for SPF stock?

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Solution Summary

The solution is very well explained. The solution first calculates the share price of the stock given the data in the questions. Detailed step by step instructions are also provided in the response. The response also has an excel file attached which delves a bit deeper into the mechanics of the calculation. Overall, an excellent response with detailed explanation for everything.

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This is an application of the Gordon 2-stage Dividend Discount Model. In years 1-3, the discount factor (to arrive at the present value) is equal to 18 %. In years 3-6, the discount stands at 12 ...

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