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10 March, 04:15

Distant Groves announced today that it will begin paying annual dividends next year. Dividends for the first three years will be $.15, $.20, and $.25 a share, respectively. After that, dividends are projected to increase by 4 percent per year. What is one share of this stock worth today at a required return of 8.5 percent?

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  1. 10 March, 04:43
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    one share of this stock worth today is $5.77

    Explanation:

    Stock next annual dividend (in the 4th year) is $0.26 ( = 0.25 x 1.04)

    Value = Stock next annual dividend / (required return - dividend growth rate)

    = 0.26 / (8.5% - 4%)
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