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Valuation: Piedmont Enterprises Stock Valuation

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12. Piedmont Enterprises currently pays a dividend (D0) of $1 per share. This dividend is expected to grow at a 20 percent per year for the next 2 years, after which it is expected to grow at 6 percent per year for the foreseeable future. If you require a 15 percent rate of return on an investment of this type, what price do you expect the stock to sell for at the beginning of year 5?

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D0 = $1.00
Growth rate for first two years g1 = 20% per annum
Growth rate for year 3 and onwards g2 = ...

Solution Summary

Stock valuation using information on dividend, growth rate and required rate of return is examined.