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The chairman of Heller Industries told a meeting of financial analysts that he expects the firm’s earnings and dividends to double over the next six years. The firm’s current [that is, as of year] earnings and dividend per share are $4 and $2, respectively. 

[A] find out the compound annual dividend growth rate over the 6-year period.

[B] Suppose the forecasted growth rate in [A] will go on forever, how much is this stock worth today if investors require an 18 percent rate of return?

[C] Why might the stock price find outd in [B] not represent an accurate valuation to an investor with an 18 percent required rate of return?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M916027

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