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QUESTION

A particular company is expected to pay a $7.00 per share dividend to its common shareholders one year from today. The expected market price of the company’s common stock immediately after the payment

A particular company is expected to pay a $7.00 per share dividend to its common shareholders one year from today. The expected market price of the company’s common stock immediately after the payment of the dividend (i.e., one year from today) is $120.00 per share. The market capitalization rate for this particular company is 10%.

(3 points) What should be the current stock price (P0) of this company’s common stock?

A particular company is expected to pay a $11.00 per share dividend to its common shareholders one year from today. The company’s dividends (and also its earnings) are expected to grow by 5% per year through the end of Year 4. Starting at the end of Year 5, the company will pay out the entirety of its earnings as dividends. Earnings Per Share for this company is estimated to be $15.00 per share one year from today. The market capitalization rate for this company is 9%.

(10 points) What should be the current stock price (P0) of this company’s common stock?

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