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# Answer to Question #19405 in Finance for bruce

Question #19405
Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 37% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company&#039;s last dividend, D, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock? a.$39.57
b. $49.37 c.$40.80
d. $42.02 e.$43.25
1
2012-11-29T08:15:27-0500
Today&#039;s price equal:
P = D*1.37^4*(1-g)/(k-g) = D*(1-g)/(rfr+beta(rm - rfr)-g)=
$4.4*1/(0.03+1.2(0.055))=$4.4/0.096 =$43.25 Answer: e)$43.25

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