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Show a timeline of the cash flows

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Gillette corporation is expected to grow its dividends and earnings at various rates. The company just paid a cash dividend of $ 1.50 per share. The company expects to grow its dividend at 3% per year for each of the next two years. Then 5% each year for each of the following two years. After which the company expects to grow at a constant rate of 8% per year indefinitely.

  1. Use the required return from the previous problem to calculate is the fair market value (FMT) of the stock now. Show a timeline of the cash flows. Show all work.
  2. If the stock traded at $40.00 per share now, is the stock undervalued or overvalued?

Reference no: EM132169151

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