= 2. (a): XYZ Inc. just paid out a dividend (Do) of $4.50. The firm anticipates...

 

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= 2. (a): XYZ Inc. just paid out a dividend (Do) of $4.50. The firm anticipates that its annual dividends will grow at g 15% a year over the next 5 years. From t=5 onwards, the management expects that the firm's dividends will grow in perpetuity at gL = 6% per year. Work out the price of the stock assuming that the risk of its future cash flows justifies a discount rate of r = 10%. [22points] 2. (b): Rework your answer to part (a) assuming that r = 15% [22points] = 2. (a): XYZ Inc. just paid out a dividend (Do) of $4.50. The firm anticipates that its annual dividends will grow at g 15% a year over the next 5 years. From t=5 onwards, the management expects that the firm's dividends will grow in perpetuity at gL = 6% per year. Work out the price of the stock assuming that the risk of its future cash flows justifies a discount rate of r = 10%. [22points] 2. (b): Rework your answer to part (a) assuming that r = 15% [22points]

Answer rating: 100% (QA)

To solve part a of the question we need to calculate the price of the stock based on the expected fu... View the full answer