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The investment banking firm of Einstein & Co. will use a dividend valuation model to appraise the shares of the Modem Physics Corporation.

Dividends (D_1) at the end of the current year will be $1.54. The growth rate (g) is 9 percent and the discount rate (K_e) is 13 percent.

a. What should be the price of the stock to the public?

b. If there is a 5 percent total underwriting spread on the stock, how much will the issuing corporation receive?

c. If the issuing corporation requires a net price of $37.00 (proceeds to the corporation) and there is a 5 percent underwriting spread, what should be the price of the stock to the public?

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Financial Management, Finance

Category:- Financial Management
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