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The chairman of Heller Industries told a meeting of

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The chairman of Heller Industries told a meeting of financial analysts that he expects the firm's earnings and dividends to double over the next 6 years. The firm's current (that is, as of year 0) earnings and dividends per share are $4 and $2, respectively.;A. Estimate the compound annual dividend growth rate over the 6-year period.;B. Assuming the forecasted growth rate in (A) will go on forever, how much is this stock worth today if investors require an 18 percent rate of return?;C. Why might the stock price calculated in (B) not represent an accurate valuation to an investor with an 18 percent required rate of return?

 

Paper#26158 | Written in 18-Jul-2015

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