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Keidis Industries will pay a dividend of $2.75, $3.85, and $5.05 per share for each of...

Keidis Industries will pay a dividend of $2.75, $3.85, and $5.05 per share for each of the next three years, respectively. In four years, you believe that the company will be acquired for $45.00 per share. The return on similar stocks is 8.9 percent. What is the current stock price?

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Answer:

Current stock price is the sum of present value of dividends by the discount factor

Current stock price = 2.75 / (1 + 0.089)^1 + 3.85 / (1 + 0.089)2 + 5.05 / (1 + 0.089)3 + 45 / (1 + 0.089)4

= 41.678

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