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Constant Growth, Constant Investing (cont)

Relationship between PV(GO)’s?   

1.68 = (1+g) × 1.5     g=0.12

Is there an easier way to estimate g for this case?

G=ROI x Investment Rate=0.2 x (1-0.4)=0.12

PVGO0 = $1.50 / (0.16 - 0.12) =$37.50

No-growth dividend value: $10/0.16 = $62.50

P = $62.50 + $37.50 = $100

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