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Verex's last dividend ,D(0), was $2.00 per share. The Value-Line Investment Survey predicts that Verex's dividends...

Verex's last dividend ,D(0), was $2.00 per share. The Value-Line Investment Survey predicts that Verex's dividends will grow at a 6% annual rate over the next two years and that the price per share two years from now will be $19.00. If the required rate of return on Verex's stock is 16%, what is the current value of a share of Verex stock?

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Answer #1

Value of share is equal to the present value of all future dividends and price to be received

= 2(1.06)/1.16 + 2(1.06)^2/(1.16)^2 + 19/(1.16)^2

=$17.6177

I.e. $17.62

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