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What is maximum price that the investors would like to pay

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Reference no: EM132970324

Problem 1: Company A is expected pay $3 dividend for 8 years, after which the dividend will grow at 2% annually forever. If the investor's required rate of return on company A's share is 10%, what is the maximum price that the investors would like to pay?

The PV of the share = PV of 8 years dividend + PV of deferred growing perpetuity.

Reference no: EM132970324

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