Consider a company which just paid a dividend D0 (paid today at time 0) of...
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Consider a company which just paid a dividend D0 (paid today at time 0) of $2.00 per share of common stock. Due to a variety of economic circumstances, this company expects to experience growth rates of 6%, 4%, 10%, and 14% over the next four years. After that the company expects the growth rate to be 6% indefinitely. If the company faces an equity discount rate of 10% throughout, answer the following: a) What is the value of a share of common stock P0 today (at time 0)? b) What would you expect the price to be at time 2? (Assume that the dividend at time 2 has already been paid) c) What are the expected capital gain yield and dividend for the third period? d) What would you expect the price to be at year 10?
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