Question

The next dividend for ABC Limited will be $0.6 per share (D 1). Investors require a...

The next dividend for ABC Limited will be $0.6 per share (D 1). Investors require a 13 % return on companies such as ABC Limited. ABC's dividend increases by 3 % every year. Based on the dividend growth model what is the value of ABC Limited shares today? Price to the nearest cent. Do not enter the $ sign.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Information provided:

Current dividend= $0.6

Dividend growth rate= 3%

Required rate of return= 13%

The question can be solved using dividend growth model.

Value of the stock today=D1/(r-g)

Where:

D1=next dividend payment

r=interest rate

g=firm’s expected growth rate

Value of the stock today= $0.6*(1+0.03)/ 0.13 – 0.03

                                     = $0.6180/ 0.10

                                    = $6.18

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The next dividend for the Marx Company will be $4 per share. Investors require a 16...
The next dividend for the Marx Company will be $4 per share. Investors require a 16 percent return on companies such as Marx. Marx’s dividend increases at a constant rate of 6 percent every year. a) What is the value of Marx’s stock today? b) What is the value of Marx’s stock in four years?
Company ABC recently paid a yearly dividend of $0.23 per share, and investors expect a 10%...
Company ABC recently paid a yearly dividend of $0.23 per share, and investors expect a 10% return from investing in the company. Calculate the share price if ABC plans to pay a fixed dividend indefinitely. Calculate the share price if ABC’s dividend is expected to grow at a fixed rate of 5% per annum. Between zero growth and constant growth dividend discount model, which one is more suitable for valuing mature companies that have minimal growth opportunities?
ABC Limited will pay a $5.01 dividend next year (t=1) on its ordinary shares. The shares...
ABC Limited will pay a $5.01 dividend next year (t=1) on its ordinary shares. The shares are currently selling at $68.36 per share. What is the market's required return on this investment if the dividend is expected to grow at 2% forever? (as a percentage to nearest two decimal places; don't use % sign)
ABC Limited will pay a $6.51 dividend next year (t=1) on its ordinary shares. The shares...
ABC Limited will pay a $6.51 dividend next year (t=1) on its ordinary shares. The shares are currently selling at $44.43 per share. What is the market's required return on this investment if the dividend is expected to grow at 3% forever? (as a percentage to nearest two decimal places; don't use % sign) Answer:
Dani's just paid an annual dividend of $6 per share. What is the dividend expected to...
Dani's just paid an annual dividend of $6 per share. What is the dividend expected to be in five years if the growth rate is 4.2%? $7.07 $7.37 $7.14 $7.44 2. The dividend discount model states that today's stock price equals the present value of all expected future dividends. true false 3. ABC's current dividend is $5 and has an annual growth rate of 6%. What would be the current price of a share of ABC stock if investors require...
Spotify just paid a cash dividend of $1 per share. Investors require a 16% return from...
Spotify just paid a cash dividend of $1 per share. Investors require a 16% return from investments such as this. What is the value of Spotify stock if the dividend is expected to grow at 25 percent for the next four years before settling at a 5% growth rate thereafter?
Company ABC expects to pay a dividend per share of $10 next year, which represents 100%...
Company ABC expects to pay a dividend per share of $10 next year, which represents 100% of its earning. The expected return from investors is 10%. The company's return on equity is 12%. a) Calculate the price of a share assuming that the company pays out 100% of its earning in dividend. b) Calculate the price of a share if the company decides to plowback 80% of its earning into the firm's operations and investments. c) Assuming a plowback ratio...
ABC Inc. will pay a dividend of $7.50 next year (one year from today). The market...
ABC Inc. will pay a dividend of $7.50 next year (one year from today). The market believes the dividend will grow at a constant rate of 4%, forever. ABC's stock price is currently $58.59. As an investor, your required rate of return for ABC Inc. is _____________%.
The annual dividend for ABC Inc was $2.20 per share and the firm's required rate of...
The annual dividend for ABC Inc was $2.20 per share and the firm's required rate of return is 15%. If dividends are expected to grow at 7% annually for 3 years followed by the 4% constant annual growth from year 4 to infinity, find the intrinsic value of ABC's share.
A company has just paid its first dividend of $3.71. Next year's dividend is forecast to...
A company has just paid its first dividend of $3.71. Next year's dividend is forecast to grow by 9 percent, followed by another 9 per cent growth in year two. From year three onwards dividends are expected to grow by 2.2 percent per annum, indefinitely. Investors require a rate of return of 16 percent p.a. for investments of this type. The current price of the share is (round to nearest cent)
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT