1) An investor estimates the dividend to be paid by company ABC to go over...
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1) An investor estimates the dividend to be paid by company ABC to go over 3 growth phases. Initially, during 6 years, it will grow at a constant rate of 10% a year. During a second phase, during 8 years, it will linearly decline until reaching the steady state long-run value of 2%. In the third phase, the growth will be at that steady state rate forever. Considering this, answer the following questions (Note: consider the discount rate to be 12% and that the last dividend paid by this company was 25 per share):
a) On the basis of the approximation provided by the H model, what is the theoretical price of a share of company ABC?
b) What is the value of the premium referring to the phase of abnormal growth of dividends?
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