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    Konawalski's Kustom Erdapfel Chips Inc, makes gourmet German Style potato chips. The company began operating in North Carolina three years ago and quickly grew. The company is now poised for national growth. Analysts call the company the next Krispy Kreme. The company pays a dividend of $0.10 per share. EPS are $0.50and analysts expect both earnings and dividends to grow at 20% per year for the next five years. The stock price is expected to increase in value by 70% over the next three years. If you believe that investors require a 20% rate of return on a stock of this risk what price would you recommend as the IPO price for Konawalski?

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    Solution Preview

    The P0 is the stock price, then over the next three years an investor is going to receive following payments:
    Year 1: ...

    Solution Summary

    The solution discusses what price would you recommend as the IPO price for Konawalski.