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Unformatted text preview: 3 = 3.2744 Sum of PV = 2.7717 + 3.0125 + 3.2744 = 9.0586 D4 = $4.98 x 1.10 (g2) = $5.478 Value of stock at the end of initial growth period (P 3 ) = D 4 /(r-g 2 )= 5.478/(15% - 10%) $109.56 Present value (PV) of value of stock at the end the end of year 3 = 109.56/(1+.15) 3 = $72.04 Current price/value of the stock, P 0 = Sum of PV of dividends in the initial growth period + PV of value of stock at the end of Year 3 $9.0586 + $72.04 $81.0986 (or) $81.10 Therefore, the maximum price per share that Nerman would pay is equal to $81.10. common stock value, V S , we must subtract the market value of all of the firms debt, V D , and the market value of preferred stock, V P, from V C . V S _ V C _ V D _ V P...
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- Spring '11