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Key drivers affecting the stock price
Calculate the expected stock price for each firm using the constant growth dividend discount model.
Today’s dividend is $10. Next year dividend will Expected rate of return in the market is 15% and the firm’s growth rate is 3%. The firm pays out half of its growth in dividends.
Firm B: Today’s dividend is $10. Expected rate of return in the market is 15% and the firm’s growth rate is 12%. The firm pays out 10% of its growth as dividend.
Comment on the key drivers affecting the stock price.