As an analyst, you have gathered the following information on a company you are tracking. The current annual dividend is $1.75. Dividends are expected to grow at a rate of 14% over the next 4 years, and then decline linearly to 5% over the next 7 years, and then remain at a long term equilibrium growth rate of 5% in perpetuity; the required return is 10%. Calculate the value of the company

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A:

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A: The question is based on the concept of Valuation of Stock.

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A: WACC = (Weight of debt * cost of debt) + (Weight of equity * Cost of equity)

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A: Cost of equity= risk free return + Beta(rate of return- risk free return) = 5% + 0.8*(10%-5%) = 9%

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A: Formulas:

Q: What is the projected dividend for the coming year?

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A: Current value is the present value of the future cash flows from that stock. Following is the…

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