Consider the following three stocks a) Stock A is expected to provide a dividend of...
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Finance
Consider the following three stocks
a) Stock A is expected to provide a dividend of $8.5 a share forever.
b) Stock B is expected to pay a dividend of $3 next year. Thereafter, dividend growth is expected to be 4% a year forever.
c) Stock C is expected to pay a dividend of $3 next year. Thereafter, dividend growth is expected to be 15% a year for five years (i.e., years 2 through 6) and zero thereafter.
If the market capitalization rate for each stock is 7%, which stock is the most valuable?
Give an elaborate calculation with formula and justify your answer.
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