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Q7. General Electric Corp. (GE) paid cash dividends totaling$0.57 per share in 2000. Over the previous three years, GE'sdividends grew at an annual rate of 15.4 per-cent. Assume that thisgrowth rate will continue for five more years, after which dividendgrowth will revert to a normal annual rate of 8 percent intoperpetuity. Also assume that the appropriate discount rate for GEis 11 percent. a. Compute the value of GE's stock at year-end 2000.b. The actual price of GE stock at year-end 2000 was $47.9375.Comparing this price to your calculation of GE's value in (a), wasGE overpriced or underpriced at year-end 2000?
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