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Market capitalization rate for stock

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Reference no: EM132478310

You are the financial advisor of a family who are currently evaluating the following the following three stocks:

  • Stock A is expected to provide a dividend of $10 a share forever.
  • Stock B is expected to pay a dividend of $5 next year. Thereafter, dividend growth is expected to be 4% a year forever.
  • Stock C is expected to pay a dividend of $5 next year. Thereafter, dividend growth is expected to be 20% a year for five years (i.e., years 2 through 6) and zero thereafter.

a) If the market capitalization rate for each stock is 10%, calculate the value of each stock.

b) If the current market price of these three stocks are as follows: Stock A - 94 Stock B - 98 Stock C - 84.51 Advise the best investment opportunity. Justify your answer.

Reference no: EM132478310

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