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Target Co. expects earnings next year of $10.00 per share, has a plowback ratio of 35%, a return on equity of 20%, and a required return of 15%. (1) Compute the current stock value. (2) Compute next year’s expected stock value, assuming growth is constant. (3) If the Board suddenly decides to increase its payout ratio a few months from now, would next year’s expected stock value be higher or lower?

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Financial Management, Finance

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