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This paper develops a valuation framework for a perpetual American call option when the underlying asset return dynamic is modelled by a regime switching process. In particular, asset return dynamic is governed by a stochastic dividend process which randomly switches between two regimes that are characterized by different rates of both drift and volatility. This regime-switching characterization of dividend growth is supported by empirical works. We provide analytical results by solving the fundamental differential equation. The analysis reveals that the option value may differ between states. Our empirical application shows that these differences may be quantitatively very important.