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Question
Davis Brothers Incorporated is an apparel manufacturer that paid a $1.50 dividend yesterday. Analysts expect dividends to grow at a constant 20 percent per year for the next four years. From that point forward, dividends are expected to grow at a constant rate of 12 percent forever. The discount rate for a firm of this risk is 15 percent. What should be the current stock price?
a. $65.96
b. $58.23
c. $103.68
d. $73.07
e. $106.79
Answer
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