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Question
Acme Corporation stock currently sells for $22.08 per share. The last dividend paid was $1.00 per share. The next dividend will be paid in one year and is expected to be $1.50; the following year's dividend will be $2.50; and, in the third year dividends are expected to begin growing at a constant rate. If the appropriate discount rate for Acme is 20 percent, at what constant rate does the market expect dividends to grow in Year 3 and beyond?
a. 10.0%
b. 15.0%
c. 8.0%
d. 20.0%
e. 12.5%
Answer
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