In March 2004, Fly Paper’s stock sold for about $73. Security analysts were forecasting,a long-term earnings growth rate of 8.5 percent. The company is expected to pay a dividend,of $1.68 per share.,a. Assume dividends are expected to grow along with earnings at g 8.5 percent per,year in perpetuity. What rate of return r were investors expecting?,b. Fly Paper was expected to earn about 12 percent on book equity and to pay out about,50 percent of earnings as dividends. What do these forecasts imply for g? For r? Use,the perpetual-growth DCF formula.
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