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ABC Corp. currently pays a dividend of $2.00 per share. The dividend is expected to grow...

ABC Corp. currently pays a dividend of $2.00 per share. The dividend is expected to grow at a constant rate of 6% into the future. If the market interest rate is 10%, then the current stock price is estimated to be ________. A. $51.25 B. $52.66 C. $53.00 D. $55.00

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Answer #1

As per Constant Dividend Growth Model,

Stock Price = D0(1 + g)/(r - g)

Here,

D0 = $2

g = 6%

r = 10%

So,

Stock Price = 2(1 + 0.06)/(0.10 - 0.06)

Stock Price = $53.00

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