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6 November, 07:03

Whole Foods will pay an annual dividend of $1.85 next year. The company just announced that future dividends will be increasing by 2 percent annually. How much are you willing to pay for one share of this stock if you require a 14 percent return?

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  1. 6 November, 10:58
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    Po = D1/Ke-g

    Po = $1.85/0.14-0.02

    Po = $1.85/0.12

    P0 = $15.42

    Explanation:

    The current market price is a function of future dividend (D1) divided by the difference between the required return and growth rate.
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