Question

# Phantom plans to pay annual dividends of \$0.45, \$0.60, and \$0.75 a share in next three...

Phantom plans to pay annual dividends of \$0.45, \$0.60, and \$0.75 a share in next three years, respectively. Afterwards, dividends are projected to increase by 1.5 percent per year. What is the market price of the stock today at a required return of 12.5 percent?

#### Homework Answers

Answer #1

The value of the stock is computed as shown below:

= Dividend in year 1 / (1 + required rate of return)1 + Dividend in year 2 / (1 + required rate of return)2 + Dividend in year 3 / (1 + required rate of return)3 + 1 / (1 + required rate of return)3 [ ( Dividend in year 3 (1 + growth rate) / ( required rate of return - growth rate) ]

= \$ 0.45 / 1.125 + \$ 0.60 / 1.1252 + \$ 0.75 / 1.1253 + 1 / 1.1253 x [ (\$ 0.75 x 1.015) / (0.125 - 0.015) ]

= \$ 0.45 / 1.125 + \$ 0.60 / 1.1252 + \$ 0.75 / 1.1253 + \$ 6.920454545 / 1.1253

= \$ 0.45 / 1.125 + \$ 0.60 / 1.1252 + \$ 7.670454545 / 1.1253

= \$ 6.26 Approximately

Feel free to ask in case of any query relating to this question

Know the answer?
Your Answer:

#### Post as a guest

Your Name:

What's your source?

#### Earn Coins

Coins can be redeemed for fabulous gifts.

##### Not the answer you're looking for?
Ask your own homework help question
ADVERTISEMENT
##### Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

ADVERTISEMENT