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Lancaster Colony Corp. (LANC) will pay a dividend of $0.80 in one quarter. LANC pays dividends quarterly. Assume that it will continue to pay this dividend forever. Further assume the firm’s equity cost of capital is 11.68% (quoted as an EAR).
(a) Under these assumptions, what is the price per share of LANC stock?
(b) Instead of a constant dividend, assume LANC will grow its dividend at a constantrate forever. Continue to assume the next divided will be $0.80 and paid in onequarter. What quarterly growth rate would justify a price of $34.78?
A stock is expected to pay a dividend of $1.00 the end of the year (that is, D1 = $1.00), and it should continue to grow at a constant rate of 7% a year. If its required return is 13%, what is the stock's expected price 1 year from today?
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What is your approximate real rate of return on this investment?
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