Morocco Manufacturing does not currently pay a cash dividend, but it does pay a stock dividend of 3% per year. A stock dividend does not directly pay cash to the shareholders. Instead it is a payment in the form of additional shares of stock. For example, if you own 100 shares, a 3% stock dividend will mean that you will receive 3 new shares, giving you a total of 103 shares.

Morocco will not pay a cash dividend, and will maintain the 3% per year stock dividend for 10 years. Morocco will then discontinue the stock dividend and institute a cash dividend of $5 per share, starting in year 11. In subsequent years the cash dividend will increase at a constant growth rate of 6% per year.

The appropriate interest rate is 14% per year.

Calculate the current intrinsic or fundamental value of share of Morocco Manufacturing stock.

Answer rating: 100% (QA)

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