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Date Posted: 14:51:51 08/06/02 Tue
Author: N.Laster
Subject: Dr.D, can you work another problem???

This question relates to non-constant dividend growth. I keep coming up with the same wrong answer and need some help.

The question:
McIver's Meals, just paid a $1.00 annual div. Investors believe that the firm will grow at 15% ann. for the next two years and 5% ann. forever thereafter. Assuming a discount rate of 10%, what is the current price of the stock?

The answer I came up with was $24.05. The sample exam said that the right answer is $25.09. Can you clarify?

Thank You,
Nicolle
P.S. Thanks for answering my other question.

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