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Dividend Growth Rate and Return

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Compute the value of a share of common stock of a company whose most recent dividend was $2.50 and is expected to grow at 3 percent per year for the next 5 years, after which the dividend growth rate will increase to 6 percent per year indefinitely. Assume 10 percent required rate of return.

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Solution Summary

The expert computes the value of a share of common stocks of a company whose most recent dividend was $2.50.

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Please see my response attached in the excel file.

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You first need to calculate the dividends for the next 5 years .This would just be multiplying the previous year dividends by 1.03. You can see this in the ...

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