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What is the required return on xyz equity

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Reference no: EM133121054

XYZ Inc. is expected to pay no dividends for the next 5 years. However, at the end of the sixth year (at time 6), the company is expected to pay a dividend of $1/share. Dividends are expected to grow at 10% per year for the following 9 years (through the end of the 15th year, i.e., time 15), then to grow at 3% every year thereafter (forever). The company has an equity beta of 1, the risk-free rate is 2% (rf = 2%), and the market risk premium is 4% (rM-rf = 4%).

a. What is the required return on XYZ's equity?

b. What is the expected value of the stock at time 15 (not including the time 15 dividend)?

c. What is the expected value of the stock at time 5?

d. What is the value of the stock today?

Reference no: EM133121054

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