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Assume a stock has current price $50 and pays yearly dividends of $1.

(a) What is the implied cost of capital? Assume capital markets are perfect.

(b) Now assume that the dividends still pay out in perpetuity,but double inevery second year, i.e. in year 2 it is $2, in year 4 it is $4, andso on. Assume the stock price is still $50. What is the implied cost of capital? Assume capital markets are perfect.

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Financial Management, Finance

Category:- Financial Management
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