Common Stock-Variable Growth
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A manufacturing fimr is considering buying another. During the year completed ABC Co. earned $ 4.25 per share and paid a cash dividend of $ 2.55 per share (Do=$2.55) ABC co earnings and dividends are expected to grow at 25% per year for the next three years , after which the are expected to grow at 10% per year to infinity. What is the maximum price per share XYZ co. should pay ABC Co. if it has a required return rate of 15% on investments with risk charactertics being the same?
The book list the answer aat $81.19. I keep getting $ 71.40. Can someone show me where I am going wrong. I have included the work I have done. Please help. Thank you.
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Solution Summary
The solution explains how to calculate the current price of a stock under variable growth situation.
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