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Bob Katz is interested in the following stock:  • current dividend is $2

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Bob Katz is interested in the following stock: 

• current dividend is $2.50 • projected three year growth rate of 10% • growth rate after year 3 is expected to fall and remain constant at 6% • Bob's required return is 12% 

Step 1: Present value of Dividends 
t Do FVIF Dt PVIF PV div 1 2 3 Step 2: Future value of stock price 
Step 3: Present value of future stock price Step 4: Present value of stock Solving for step 4, what would Bob Katz be willing to pay (approximately) for the stock? 
$40.89 O $43.67 O $46.29 0 $49.13 
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