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Part A:
ABC expects to pay a dividend one year from now of $0.91. The dividend exhibits constant growth of 10.2%, and the current price of the stock is $23.49. Given all of this information, what is the expected rate of return for this stock under the discounted cash flow model?
Part B:
ABC Incorporated just paid a dividend of $1.59 on its common stock. Joe forecasts that the dividends for ABC will grow at a constant rate of 10.3% over the foreseeable future. Assuming that he is correct, how many total dollars of dividends should Joe expect to receive over the next five years?
Part C:
XYZ common stock is expected to pay a dividend of $2.58 next year, and that dividend grows at a constant rate of 9.4 percent. If the current price of XYZ common stock is $20.25, then what is the expected rate of return for this stock, based on the Discounted Cash Flow model?
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How long will its supernormal rate of growth last before it levels off to equal the normal rate for a company with its risk?
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