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What the estimated value of castro stock at the beginning

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Reference no: EM132943347

Castro Inc. is one of the leading competitors of Therma. The analysts at Castro are analyzing the current dividend policy of the entity and reviewing it in the event of any needed amendments.

Castro is expected to pay a dividend of $7/share in 2020, $10/share in 2020 and $12/share in 2022. The share price of Castro on 31st December, 2021 and 31st December, 2022 is expected to be $190 and $220, respectively.

The discount rate applicable to Castro is 15%.

The company has a reported leverage ratio of 2.5 and total assets of $13 million. Net income and sales for the year ended 31st December, 2019 were $850,000 and $6,000,000, respectively.

Problem 1: Using the dividend discount model, the estimated value of Castro's stock at the beginning of 2020 using the expected share price on December 31, 2022 is closest to:

A. $309.85/share
B. $160.11/share
C. $166.29/share

Reference no: EM132943347

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