Led corp.'s common stock paid $2.50 in dividends last year (d0). dividends are expected to grow at a 12minuspercent annual rate forever. if led's current market price is $40.00, and your required rate of return is 23 percent, should you purchase the stock?

No, you should not purchase the stock as the stock is over priced.

Explanation:

Stock Price should be

Stock Price = Dividend last year / Required Rate of Return

                   = $2.50 / 23%

                   = $10.86

The current market price of the stock is $40 so the stock is over priced as it is $10.86 that is why you should not purchase the stock.

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