An American company in the consumer staples sector with a required rate of return of 7.35%. Recent media reports suggest that ABC might be a takeover candidate. Peters and her team estimate that if the incumbent american prime minister's party retains its power, the company's current annual dividend of $0.65 per share will grow 12% a year for the next four years and then stabilize at a 3.5% growth rate a year indefinitely. If a new government takes once in USA, however, then the team estimates that ABC will likely not experience the elevated 12% short- run growth because of new regulatory and tax changes, and instead it will grow by 3.5% indefinitely. Assuming the incumbent government retains office in US, Peters and her team estimate that the current value of Company ABC stock would be closest.

Answer rating: 100% (QA)

To calculate the current value of Company ABC stock we need to calculate the present value of its ... View the full answer