1. Suppose XZY Corp. just paid a dividend of $0.60. The firm has a payout ratio of 20%, and its dividends are expected to grow in perpetuity at 16%. You estimate that its market capitalization rate is 17%.
(a) At what price should the stock of XZY sell if it is priced by the constant dividend growth model?
(b) Decompose the price into PVGO and the present value of Assets-in-Place.
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