QUESTION Describe the free cash flow approach to firm valuation. How does it compare to...
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QUESTION Describe the free cash flow approach to firm valuation. How does it compare to the dividend discount model (DDM)? (9 marks) X company is expected to pay a dividend in year 1 of l.20, a dividend in year 2 of l.50 and a dividend in year 3 of 2.00. After year 3, dividends are expected to grow at the rate of 10% per year. An appropriate required return for the stock is 14%. What should the stock be worth today? (7 marks) The growth in dividends of Y Ltd is expected to be 8% per year for the next 2 years, followed by a growth rte of 4% per year for 3 years, after this 5 year period, the growth in dividends is expected to be 3% per year indefinitely. The required rate of return of $2.75. What should the stock sell for today? (c/ Y Ltd is 11%. Last year's dividends per share were (9 marks)
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