Question: Dividend Discount Model Question 1 Stock X has a required return of 15%. Its earnings are expected to grow at 5% per year forever and

Dividend Discount Model

Question 1

Stock X has a required return of 15%. Its earnings are expected to grow at 5% per year forever and it pays out half of them as dividends. (It can be proven that earnings growth and dividend growth is the same.) If next years earnings are expected to be 20, what is its current stock price? (You may assume dividends growth rate is equal to earnings growth rate.)

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