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Zach has been appointed fiscal coordinator for the stanford narcolepsy institute. He has the task of...

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Finance

Zach has been appointed fiscal coordinator for the stanfordnarcolepsy institute. He has the task of valuing 3M. 3M will pay adividend of $2.25 next quarter. Zach estimates that the firm willgrow at 6% per quarter for 4 years, at 3% per quarter for 3 years,then at 1% per quarter thereafter. The cost of equity is 16% withannual compounding. Find the correct stock price for 3M.

Answer & Explanation Solved by verified expert
3.6 Ratings (629 Votes)
As a first step we need to find the rate per period ieeffective rate per quarter R that will be used fordiscounting1 R4 1 16Hence R 11614 1 378Stage 1 Year 1 to Year 4Growth rate g1 6 per    See Answer
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Zach has been appointed fiscal coordinator for the stanfordnarcolepsy institute. He has the task of valuing 3M. 3M will pay adividend of $2.25 next quarter. Zach estimates that the firm willgrow at 6% per quarter for 4 years, at 3% per quarter for 3 years,then at 1% per quarter thereafter. The cost of equity is 16% withannual compounding. Find the correct stock price for 3M.

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