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Common Stock Value: Variable Growth
Lawrence Industries' most recent annual dividend was $1.80 per share (D o = $1.80), and the firm's required rate of return is 11%. Find the market value of Lawrence's shares when:
a) Dividends are expected to grow at 8% annually for 3 years, followed by a 5% constant annual growth rate in years 4 to infinity.
b) Dividends are expected to grow at 8% annually for 3 years, followed by a 0% constant annual growth rate in years 4 to infinity.
c) Dividends are expected to grow at 8% annually for 3 years, followed by a 10% constant annual growth rate in years 4 to infinity.
If the discount rate is 6 percent, what is the future value of these cash flows in Year 4? What is the future value at an interest rate of 14 percent? What is the future value at an interest rate of 21 percent?
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