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KMG Corp. has never paid a dividend. In a press release, they just announced that starting...

KMG Corp. has never paid a dividend. In a press release, they just announced that starting from next year; they plan on paying an annual dividend of $0.34. It also stated that the dividends are expected to increase by 40% a year for each of the following four year and then increase by 4% annually thereafter. The required rate of return is 15%. What is the expected price per share of KMG stock six years from now?

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Answer #1

Please refer to the image below for the solution. I have rounded off all calculations to 4 decimal places.

Do let me know in the comment section in case of any doubt.

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