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Betty Harris is interested in buying the stock of Cullumber, Inc., which is increasing its dividends...

Betty Harris is interested in buying the stock of Cullumber, Inc., which is increasing its dividends at a constant rate of 7.4 percent. Last year the firm paid a dividend of $2.65. The required rate of return is 18.00 percent. What is the current value of this stock? What should be the price of the stock in year 5?

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Answer #1

Cost of equity = ke = D1 = 18.00% 7.4% $2.85 $26.85 2.85 = (18% - 7.4%) 2.65*1.074 Price = 01/(ke-g) Stock price 5 years from

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