Question

A corp just paid a dividend $1.5, anaylysts believe the dividends will grow at 8% next...

A corp just paid a dividend $1.5, anaylysts believe the dividends will grow at 8% next year, 6% the following year, and 4% thereafter. If stocks of this risk have a required return of 18%, what should the price be today?

Please solve using the CF buttons and explain

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Year 1 cash flow = 1.5 * (1 + 8%) = 1.62

Year 2 cash flow = 1.62 * (1 + 6%) = 1.7172

Year 3 cash flow = 1.7172 * (1 + 4%) = 1.785888

Value at year 3 = D4 / required rate - growth rate

Value at year 3 = 1.785888 / 0.18 - 0.04

Value at year 3 = 1.785888 / 0.14

Value at year 3 = $12.756343

Price of stock = 1.62 / (1 + 0.18)1 + 1.7172 / (1 + 0.18)2 + 1.785888 / (1 + 0.18)3 + 12.756343 / (1 + 0.18)3

Price of stock = 1.372881 + 1.233266 + 1.086947 + 7.763904

Price of stock = $11.46

Keys to use in a financial calculator:

CF0 0

CF1 1.62 F01 1

CF2 1.7172 F02 1

CF3 1.7172 + 12.756343  F03 1

NPV

I 18

CPT  

Note: If you need more clarifications, please put it in comments

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
A7X Corp. just paid a dividend of $1.55 per share. The dividends are expected to grow...
A7X Corp. just paid a dividend of $1.55 per share. The dividends are expected to grow at 30 percent for the next 7 years and then level off to a growth rate of 8 percent indefinitely.     If the required return is 14 percent, what is the price of the stock today?
A7X Corp. just paid a dividend of $1.40 per share. The dividends are expected to grow...
A7X Corp. just paid a dividend of $1.40 per share. The dividends are expected to grow at 30 percent for the next 9 years and then level off to a growth rate of 8 percent indefinitely.     If the required return is 14 percent, what is the price of the stock today? Multiple Choice $82.18 $2.72 $110.05 $107.89 $105.74
ABC Corp. has just paid a quarterly dividend of $0.3. ABC's dividends will grow by 5%...
ABC Corp. has just paid a quarterly dividend of $0.3. ABC's dividends will grow by 5% for the next 4 quarters, and then grow by 0.5% thereafter. ABC has a quarterly required return of 4%. What is the intrinsic value of ABC stock?
A7X Corp. just paid a dividend of $1.50 per share. The dividends are expected to grow...
A7X Corp. just paid a dividend of $1.50 per share. The dividends are expected to grow at 40 percent for the next 10 years and then level off to a growth rate of 6 percent indefinitely.     If the required return is 15 percent, what is the price of the stock today?
Zena Corp just paid investors a dividend of $1.25. This growing company expects dividends to grow...
Zena Corp just paid investors a dividend of $1.25. This growing company expects dividends to grow at 8% for the next three years. After year 3, dividends are expected to grow constantly at 2% per year. Investors require a 7% return on Zena Corp stock. What is the current value of Zena Corp stock? 1-$30.04    2-$28.51 3-$25.00 4-$26.22 Filmore Incorporated anticipates its revenues and common stock dividends will remain flat forever. It currently pays an annual dividend of $20...
A7X Corp. just paid a dividend of $1.32 per share. The dividends are expected to grow...
A7X Corp. just paid a dividend of $1.32 per share. The dividends are expected to grow at 12 percent for the next eight years and then level off to a growth rate of 2.5 percent indefinitely. If the required return is 8 percent, what is the price of the stock today? Select one: A. $28.85 B. $60.91 C. $64.18 D. $45.39 E. $52.87
Stella Corporation just paid a $3.00 dividend this morning. Analysts believe that the company's dividends will...
Stella Corporation just paid a $3.00 dividend this morning. Analysts believe that the company's dividends will grow 30% per year for each of the next 2 years. after the second year, analysts believe that dividends will grow constantly into the foreseeable future at 4% per year. if analysts believe that Stella Corporation stock should earn a required return of 12% per year, what is the intrinsic value of a share its stock today?
Thirsty Cactus Corp. just paid a dividend of $1.20 per share. The dividends are expected to...
Thirsty Cactus Corp. just paid a dividend of $1.20 per share. The dividends are expected to grow at 25 percent for the next 9 years and then level off to a 6 percent growth rate indefinitely. Required : If the required return is 14 percent, what is the price of the stock today?
a. ABC Company has just paid a dividend of $1.00 per share. Dividends are paid annually....
a. ABC Company has just paid a dividend of $1.00 per share. Dividends are paid annually. Analysts estimate that dividends per share will grow at a rate of 20% for the next 2 years, at 15% for the subsequent 3 years, and at 3% thereafter. If the shareholders’ required rate of return is 12% per year, then what is the price of the stock today? What will be the ex-dividend price at the end of the first year? What will...
Upper Gullies Corp. just paid a dividend of $2.70 per share. The dividends are expected to...
Upper Gullies Corp. just paid a dividend of $2.70 per share. The dividends are expected to grow at 19 percent for the next eight years and then level off to a 7 percent growth rate indefinitely. If the required return is 14 percent, what is the price of the stock today? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)   Stock price $
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT