Question: ANSWER A and B, PROMISE I WILL LIKE 10 Marks ) Stock Two-DGC Co. is in a consolidation industry: The DGC company just paid a

ANSWER A and B, PROMISE I WILL LIKE

10 Marks) Stock Two-DGC Co. is in a consolidation industry: The DGC company just paid a dividend of $1 per share. The dividend is expected to grow at a rate of 20% per year for the next 2 years, and then to level off to 5% per year forever. Analysts predict that the expected rate of return for the company stock is 20% per year. Intrinsic Value = $9

a) (2 Marks) Surprisingly, DGC company as in b) above just won a lawsuit that awards it $1 million immediately. If the original value of DGC company equity were $100 million, What would you guess was the rate of return of its stock now?

b) (2 Marks) What would you answer be in question c)s scenario if the market had expected DGC company to win $2 million?

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