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Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.2IP

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Question

You are considering a purchase of UnderDog Inc.’s stock, currently available on the NYSE for $105 a share.

You have calculated that for this investment the required rate of return is 11.3% and the past dividends were growing in accordance with the GDP growth. The economy is expected to grow 2.0% in the foreseeable future. The latest dividend was $10 per share.

2) What if the GDP growth suddenly increased to 3%?

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