ABC CorpHas Just Paid an Annual Dividend of $0

question 119

Essay

ABC Corp.has just paid an annual dividend of $0.50 per share.Dividends are expected to grow at 15% for each of the next 8 years,at 10% for the 2 years after that,and at 3% thereafter.If the appropriate discount rate is 10%,what is the intrinsic value of the stock?

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Definitions:

Price Level

Denotes the average of current prices across the entire spectrum of goods and services produced in the economy.

Skimming Pricing

Setting the highest initial price that customers really desiring the product are willing to pay when introducing a new or innovative product.

Highest Initial Price

A pricing strategy where a new product is introduced to the market at a high price before possibly lowering it later based on demand and competition.

Innovative Product

A new or significantly improved product that introduces a novel feature or fulfills a specific need in a new way.