What is the maximum price

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a) Badgers Inc. is a relatively young company that has been growing quite rapidly over the past 4 years. As it is still considering high growth opportunities, it has decided to retain all earnings for investment opportunities for the next 3 years. After that, it expects to pay an annual dividend of $3 starting four years from today. Badgers Inc. then expects dividends to grow at 15% for the next two years, and then continue to grow at a constant rate of 10% indefinitely. If you require 14% return on your investment, what is the maximum price you will be willing to pay for this stock today?

b) Toronto Inc. has never paid a dividend, but the board of directors recently announced that beginning 9 years from now, the company will pay a $6 annual dividend forever. Given the required return of 15%, how much would you pay for the stock today?

Reference no: EM133120339

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