Question

Business Solutions is expected to pay its first annual dividend of $.84 per share in Year...

Business Solutions is expected to pay its first annual dividend of $.84 per share in Year 3. Starting in Year 6, the company plans to increase the dividend by 2 percent per year. What is the value of this stock today, Year 0, at a required return of 14.4 percent?

$5.01 $8.09 $8.29 $7.03 $9.34

How do you solve this on the financial calculator?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Solution -

DPS3 = 0.84

DPS4 = 0.84

DPS5 = 0.84

DPS6 = DPS5 (1+G)

DPS6 = 0.84 (1+0.02)

DPS6 = 0.86

Terminal value at the year end 5 =

Terminal Value at the year end 5 =

Terminal Value at the end of Year 5 = $6.91

To calculate current price of stock -

Current price = Current Price =

Current Price = $5.01

Hence, the correct answer is point A i.e. $5.01

If you have any query related to answer, then please feel free to ask me in a comment. Thanks. Please Rate.

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 Sports Club plans to pay an annual dividend of $1.20 per share next year, $1.12...
The Sports Club plans to pay an annual dividend of $1.20 per share next year, $1.12 per share a year for the following two years, and then in year 4 expects its dividend to increase at a constant rate of 8.8% per year. How much is one share of this stock worth to you today if you require a rate of return of 18.7 percent of this risky investment?
New Gadgets, Inc., currently pays no dividend but is expected to pay its first annual dividend...
New Gadgets, Inc., currently pays no dividend but is expected to pay its first annual dividend of $5.40 per share exactly 5 years from today. After that, the dividends are expected to grow at 3.7 percent forever. If the required return is 12.3 percent, what is the price of the stock today?
Since it has been in business, FreeFin has paid $2.20 per share annual dividend to its...
Since it has been in business, FreeFin has paid $2.20 per share annual dividend to its common stock holders. The company plans to pay the $2.20 dividend next year. The following year it plans to increase the dividend to $2.75 and the year after than it plans to pay a dividend of $3.40. After that, FreeFin plans to increase the dividend by 4.9% each year for the remainder of the company’s life. If investors require a 10% rate of return...
A business is expected to pay a dividend of $1.50 per share at the end of...
A business is expected to pay a dividend of $1.50 per share at the end of the year, and that dividend is expected to grow at a constant rate of 5% per year in the future. The company's beta is 1.50, the market return is 15%, and the risk-free rate is 1.50%. What is the current stock price?
Kandle stock just paid a dividend of $4.76 per share and plans to pay a dividend...
Kandle stock just paid a dividend of $4.76 per share and plans to pay a dividend of $5 per share next year, which is expected to increase by 3 percent per year subsequently. The required rate of return is 15 percent. What is the value of Kandle stock, using the dividend discount model?
General Importers announced that it will pay a dividend of $3.65 per share one year from...
General Importers announced that it will pay a dividend of $3.65 per share one year from today. After that, the company expects a slowdown in its business and will not pay a dividend for the next 4 years. Then, 6 years from today, the company will begin paying an annual dividend of $1.75 forever. The required return is 11.4 percent. What is the price of the stock today
Metroplex Corporation will pay a $5.40 per share dividend next year. The company pledges to increase...
Metroplex Corporation will pay a $5.40 per share dividend next year. The company pledges to increase its dividend by 3.80 percent per year indefinitely. Required: If you require an 13.70 percent return on your investment, how much will you pay for the company's stock today?
Dvorak Enterprises is expected to pay a stable dividend of $7 per share per year for...
Dvorak Enterprises is expected to pay a stable dividend of $7 per share per year for the next 8 years. After that, investors anticipate that the dividends will grow at a constant rate of 3 percent per year indefinitely. If the required rate of return on this stock is 12 percent, what is the fair market value of a share of Dvorak?
Storico Co. just paid a dividend of $3.15 per share. The company will increase its dividend...
Storico Co. just paid a dividend of $3.15 per share. The company will increase its dividend by 20 percent next year and then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on the company’s stock is 12 percent, what will a share of stock sell for today? (Please show how to...
A. The James Clothing Co. pays a constant annual dividend of $4.00 per share. What is...
A. The James Clothing Co. pays a constant annual dividend of $4.00 per share. What is one share of this stock worth to you today if you require a 27 percent rate of return? B. LB Moore has 33,000 shares of common stock outstanding. The firm just paid an annual dividend of $2.00 per share on this stock. The market rate of return is 16.00 percent. What will one share of this stock be worth one year from now if...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT