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Estimating the current price of given stock

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Trend-Line Inc. has been growing at a rate of 6% per year and is expected to continue to do so indefinitely. The next dividend is expected to be $5 per share.

a. If the market expects a 10% rate of return on Trend- Line, at what price must it be selling?
b. If Trend- Line's earnings per share will be $8, what part of Trend-Line's value is due to assets in place, and what part to growth opportunities.

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Solution estimates the current price of given stock.

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a. Next expected dividend=Do=$5
Growth rate=g=6%
Required rate of return=r=10%
Expected ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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