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What is the after-tax return if sell the stock in three-year

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Reference no: EM132909047

Holyrood Co. just paid a dividend of $2.45 per share. The company will increase its dividend by 20% next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5% dividend growth, after which the company will keep a constant growth rate forever.

Problem 1: If the required return on Holyrood stock is 11%, what will a share of stock sell for today?

Problem 2: Now, assume capital gains are taxed at 50% and dividends are taxed at 25%. What is the after-tax return if you sell the stock in 3-years?

Reference no: EM132909047

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