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# Medical Corporation of America (MCA) has a current stock price of \$36 and its last dividend (D0) was \$2. In view of MCA's strong financial position,...

Medical Corporation of America (MCA) has a current stock price of
\$36 and its last dividend (D0) was \$2.40. In view of MCA’s strong
financial position, its required rate of return is 12 percent. If MCA’s
dividends are expected to grow at a constant rate in the future, what is
the firm’s expected stock price in five years?

Solution:
Stocke price
Dividend (D0)
Rate of return
Let the growth rate be g 36
2.4
12% Current share prcie(36)=
Solving for g
Growth rate 2.4*(1+g)/(0.12-g) Expected stock price in five years 5%...

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