Problem regarding the required return on equity
Course:- Finance Basics
Reference No.:- EM131419612

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Consider Elixir Drug Company, which is enjoying rapid growth from the introduction of its new medicine for back pain. What is your estimate of the current value of the stock price using a two-stage DDM if you assume the growth rate in dividends will be 15% for the next five years then fall to 5% forever, the required return on equity (Re) is 10% and the current dividend is $1.00 per share?

A. $53.91

B. $20.78

C. $23.00

D. $31.95

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