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You forecast a company's dividends for the next four years. In Year 1, you expect to...

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Finance

You forecast a company's dividends for the next fouryears. In Year 1, you expect to receive $1.00 in dividends. In Year2, you expect to receive $1.10 in dividends. In Year 3, you expectto receive $1.20 in dividends. In Year 4, you expect to receive$1.30. After Year 4, dividends are expected to grow at 2%. Therate of return for similar risk common stock is 7%. What is thecurrent value of this company's stock? 

Answer & Explanation Solved by verified expert
4.4 Ratings (972 Votes)
Step 1 Computation of market price at the end of year 4using Gordon Growth ModelP4 D5 Ke gWhereP4    See Answer
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You forecast a company's dividends for the next fouryears. In Year 1, you expect to receive $1.00 in dividends. In Year2, you expect to receive $1.10 in dividends. In Year 3, you expectto receive $1.20 in dividends. In Year 4, you expect to receive$1.30. After Year 4, dividends are expected to grow at 2%. Therate of return for similar risk common stock is 7%. What is thecurrent value of this company's stock? 

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