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Posted by: johnsonj
Price Quoted by Student: $5
Posted On: 2011-07-02 06:06:42

B20. (Constant growth model) Medtrans is a profitable firm that is not paying a dividend on its common stock. James Weber, an analyst for A. G. Edwards, believes that Medtrans will begin paying a $1.00 per share dividend in two years and that the dividend will increase 6% annually thereafter. Bret Kimes, one of James’ colleagues at the same firm, is less optimistic. Bret thinks that Medtrans will begin paying a dividend in four years, that the dividend will be $1.00, and that it will grow at 4% annually. James and Bret agree that the required return for Medtrans is 13%.

a. What value would James estimate for this firm?

b. What value would Bret assign to the Medtrans stock?

SOLUTION a. What value would James est
Price $5
Attachment 1: FIN 571 C5 B20 (Constant growth model) Medtrans.doc
Solution Posted By: Johnsonj    Posted on: 02-07-2011