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Constant-Growth Model - Amount to Pay for Stock

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Constant-Growth Model. You believe that the Non-stick Gum Factory will pay a dividend of $2 on its common stock next year. Thereafter, you expect dividends to grow at a rate of 6 percent a year in perpetuity. If you require a return of 12 percent on your investment, how much should you be prepared to pay for the stock?

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Solution Summary

Short, annotated calculations explain how to judge the price of stock if one requires a return on investment of 12%.

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