Estimate the current value of Morris Industries' common stock, P0 = ? Assume...
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Accounting
Estimate the current value of Morris Industries' common stock, P0 = ?
Assume
The most recent annual dividend payment of Morris Industries was $4 per share.
The firm's financial manager expects that these dividends will increase at an 8% annual rate over the next 3 years.
At the end of the 3 years the firm's mature product line is expected to result in a slowing of the dividend growth rate to 5% per year forever.
The firm's required return (r) is 12%.
Add the PV of the initial dividend stream to the PV of the stock price at the end of the initial growth period:
P0 = $? + $? = $64.98
How to do this problem? What formula to use?
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