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Magic Drug Company is expected to have rapid growth. The dividend for a share of Magic's stock a year from today is expected to be $2. During the next two years (year 2 and year 3), the dividend is expected to grow at 10 percent per year (g1=10%). After year 3, the growth rate (g2) will be equal to 12 percent per year. What is the present value of a share of stock if the required return is 15 percent? O A. $71.0 O B. $89.1 OC. $56.65 O D. $64.4

Magic Drug Company is expected to have rapid growth. The dividend for a share of Magic's stock a year from today is expected to be $2. During the next two years (year 2 and year 3), the dividend is expected to grow at 10 percent per year (g1=10%). After year 3, the growth rate (g2) will be equal to 12 percent per year. What is the present value of a share of stock if the required return is 15 percent? O A. $71.0 O B. $89.1 OC. $56.65 O D. $64.4

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Magic Drug Company is expected to have rapid growth. The dividend for a share of Magic's stock a year from today is expected to be $2. During the next two years (year 2 and year 3), the dividend is expected to grow at 10 percent per year (g1=10%). After year 3, the growth rate (g2) will be equal to 12 percent per year. What is the present value of a share of stock if the required return is 15 percent? O A. $71.0 B. $89.1 O C. $56.65 O D. $64.4
Transcribed Image Text:Magic Drug Company is expected to have rapid growth. The dividend for a share of Magic's stock a year from today is expected to be $2. During the next two years (year 2 and year 3), the dividend is expected to grow at 10 percent per year (g1=10%). After year 3, the growth rate (g2) will be equal to 12 percent per year. What is the present value of a share of stock if the required return is 15 percent? O A. $71.0 B. $89.1 O C. $56.65 O D. $64.4
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