Question

Kettle Korn, is planning on paying a $1.50 dividend one year from today. Starting 2 years...

Kettle Korn, is planning on paying a $1.50 dividend one year from today. Starting 2 years from today, the dividend will be a constant $2.25 per share per year. What is the market price of this stock if the market rate of return is 12%? Select one: a. $18.08 b. $16.67 c. $17.60 d. $16.08 e. $15.47

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Expected Dividend ( D1) = $ 1.5

Given in the Question from 2nd year onwards there is a Constant dividend of $ 2.25 per share.

Present value of the amount at the end of Year 1 = $ 2.25/ i

= $ 2.25/0.12

= $ 18.75

Current Market Price of a stock = Present value of the future cash inflows

= ($ 1.5+$ 18.75)/( 1+i)

= $ 20.25/1.12

= $ 18.0803

Hence Current Market Price of a stock is $ 18.0803.Hence option a) $ 18.0803 is correct.

If you have any doubt,please post a comment.

Thank you.Please rate it.

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
Gurkarant is planning on paying annual dividends of $1.20, $1.35, and $1.50 over the next 3...
Gurkarant is planning on paying annual dividends of $1.20, $1.35, and $1.50 over the next 3 years, respectively. After that, Gurkarant's plans to pay a constant dividend of $1.75 per share each year. To compute the value of Gurkarant’s's stock today, you should first determine the value of the stock at the end of year. Calculate the value of the stock. (WITH ALL THE STEPS AND FORMULAS) You can assume the rate of return by yourself like ( 10% or...
A share of stock sells for $65 today. The beta of the stock is 1.5, and...
A share of stock sells for $65 today. The beta of the stock is 1.5, and the expected return on the market is 12%. The stock is expected to pay a dividend of $1.50 in one year. With the risk free rate of return 3.41%, what will the share price be in one year, just after the dividend is paid? Select one: A. 75.09 B. 72.59 C. 76.09 D. 75.59 E. 74.09
Wii U announced today that it will begin paying annual dividends. The first dividend will be...
Wii U announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $1 a share. The following dividends will be $1.2, and $1.37 a share annually for the following two years, respectively. After that, dividends are projected to increase by 4 percent per year. How much are you willing to pay today to buy one share of this stock if your desired rate of return is 12 percent?
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?
A firm will pay a dividend of $0 one year from today and $5.00 two years...
A firm will pay a dividend of $0 one year from today and $5.00 two years from today (that is, D1 = $0 and D2 = 5.00). Thereafter, the dividend is expected to grow at a constant rate forever. The price of this stock today is $100 and the required rate of return on the stock is 10%. What is the expected constant growth rate of the dividend stream from year 2 to infinity? For this problem, you must compute...
XYZ Company announced today that it will begin paying annual dividends next year. The first dividend...
XYZ Company announced today that it will begin paying annual dividends next year. The first dividend will be $0.1 a share. The following dividends will be $0.1, $0.2, $0.3, and $0.4 a share annually for the following 4 years, respectively. After that, dividends are projected to increase by 2 percent per year. How much are you willing to pay to buy one share of this stock today if your desired rate of return is 8 percent?
XYZ company announced today that it will begin paying annual dividends next year. The first dividend...
XYZ company announced today that it will begin paying annual dividends next year. The first dividend will be $0.12 a share. The following dividends will be $0.15, $0.20, $0.50, and $0.60 a share annually for the following 4 years, respectively. After that, dividends are projected to increase by 5 percent per year. How much are you willing to pay to buy one share of this stock today if your desired rate of return is 8 percent?
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 _____________%.
(7-2) Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at...
(7-2) Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1=$1.50D1=$1.50). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rsrs, is 13%. What is the estimated value per share of Boehm’s stock? (7-4) Preferred Stock Valuation Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each...
(7-2) Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at...
(7-2) Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1=$1.50D1=$1.50). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rsrs, is 13%. What is the estimated value per share of Boehm’s stock? (7-4) Preferred Stock Valuation Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT