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Advantages and disadvantages of the multi-stage

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a) Bluebird Co. stock pays a dividend of $12 per share (perpetuity). Assuming a discount rate of 15%, what is the value of this stock?

b) Penguin Inc. currently pays a dividend of $4 per share on its common stock. The dividend is expected to grow at 4% per year forever. Stocks with similar risk are currently priced to provide a 12% expected return. What is the value of the stock?

c) Snow-Valley's stock currently sells for $35 per share. The stock's dividend is expected to grow at 6% per year indefinitely. The firm has just paid a dividend of f3 per share. Given this information, calculate the stock's (implied) rate of return?

d) What does the firm's growth rate (g) actually reflect?

e) What are the advantages and disadvantages of the multi-stage (growth) discounted cash flows approach?

Reference no: EM133117050

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