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Chesapeake, Inc. in Meridian, Mississippi just paid a $1.50 dividend yesterday. Analysts expect the dividend to grow at 20 percent for the next two years, 10 percent the subsequent year, and 4 percent thereafter. In addition, you have estimated the beta of this stock to be 1.40. The 10-year U.S. Treasury is currently yielding 0.90 percent and you estimated the market risk premium to be 6 percent. Assume the CAPM holds.

  1. What is the required rate of return?
  2. What is the dividend two years from today?
  3. When calculating the value of the growing perpetuity, what value do you get and at what point in time is that value?
  4. What is the current value of this stock?


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