Question

Presently, Stock A pays a dividend of $2.00 a share, and you expect the dividend to...

Presently, Stock A pays a dividend of $2.00 a share, and you expect the dividend to grow rapidly for the next four years at 20%. Thus, the dividend payments will be

Year     Dividend

1          $1.20

2          $1.44

3          $1.73

4          $2.07

After this initial period of super growth, the rate of increase in the dividend should decline to 8%. If you want to earn 12% on investments in common stock, what is the maximum you should pay for this stock? Hint: Use non-constant growth formula to calculate price.

Homework Answers

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
Similar Questions
(ii) Presently, Stock A pays a dividend of $2.00 a share, and you expect the dividend...
(ii) Presently, Stock A pays a dividend of $2.00 a share, and you expect the dividend to grow rapidly for the next four years at 20 percent. Thus the dividend payments will be        Year      Dividend          1        $1.20          2         1.44          3         1.73          4         2.07 After this initial period of super growth, the rate of increase in the dividend should decline to 8 percent. If you want to earn 12 percent on investments in common stock, what is the maximum you should pay for this stock?
(i) Your broker recommends that you purchase XYZ Inc. at $60. The stock pays a $2.40...
(i) Your broker recommends that you purchase XYZ Inc. at $60. The stock pays a $2.40 dividend which is expected to grow annually at 8 percent. If you want to earn 12 percent on your funds, is this a good buy? (ii) Presently, Stock A pays a dividend of $2.00 a share, and you expect the dividend to grow rapidly for the next four years at 20 percent. Thus the dividend payments will be        Year Dividend          1 $1.20          2 1.44...
You are considering buying common stock that just paid a $ 2.00 dividend. You expect stocks...
You are considering buying common stock that just paid a $ 2.00 dividend. You expect stocks to grow at a rate of 20% for the next 5 years and thereafter at a steady normal growth rate of 8%. If you require a 16% rate of return, how much would you be willing to pay for this action today?
The Birdstrom Co. just recently paid a dividend of $2.00 per share. Stock market analysts expect...
The Birdstrom Co. just recently paid a dividend of $2.00 per share. Stock market analysts expect that the growth rate for the dividend will be 40% in year 1, 30% in year 2, 20% in year 3, 15% in year 4, and 10% in year five. After the fifth year, the dividend will grow at a constant rate of 6%. If the required return for Birdstrom is 12%, calculate the current stock price and the expected dividend yield and capital...
Wyatt Oil presently pays no dividend. You anticipate Wyatt Oil will pay an annual dividend of...
Wyatt Oil presently pays no dividend. You anticipate Wyatt Oil will pay an annual dividend of $0.74 per share two years from today and you expect dividends to grow by 5.36% per year thereafter. If Wyatt Oil's equity cost of capital is 14.64%, then the value of a share of Wyatt Oil today is:
Coca Cola presently pays no dividend. You anticipate Coca Cola will pay an annual dividend of...
Coca Cola presently pays no dividend. You anticipate Coca Cola will pay an annual dividend of $0.89 per share five years from today and you expect dividends to grow by 3% per year thereafter. If Coca Cola's equity cost of capital is 10%, then the value of a share of Coca Cola today is:
Q1/Character Co. offers a common stock that pays an annual dividend of $3.36 a share. The...
Q1/Character Co. offers a common stock that pays an annual dividend of $3.36 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn a 7.82 percent return on your equity investments? Q2/The Onboard Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 23.3 percent a year for the next 3...
A stock is currently at $112 and pays an annual dividend of $4.75. You expect the...
A stock is currently at $112 and pays an annual dividend of $4.75. You expect the stock to generate a 12% return over the next 3 years. What would the price be in 3 years if you are right? A.)An investment will pay you $450 every month for the next 18 years and $4,500 at the end of 18 years.   if you can earn 7.5% on your money, how much would you be willing to pay for this investment?
IBM just paid a dividend of $1.2 per share. You expect IBM's dividend to grow at...
IBM just paid a dividend of $1.2 per share. You expect IBM's dividend to grow at a rate of 10% per year for the next three years, and then you expect constant dividend growth of 5% forever. Based on the risk of IBM stock, you require a return of 8%. Using the dividend discount model, what is the value of IBM stock?
RBC stock pays a quarterly dividend and is expected to pay $1 per share in 3...
RBC stock pays a quarterly dividend and is expected to pay $1 per share in 3 months from today. Assume investors wish a return of ?^(4)=10%, and they expect the dividends to grow at a rate of ?^(4)=5%. Assume they expect the dividends to grow at this rate forever. Show all of your work! a.) What is the current value of one RBC share? b.) Suppose investors are mistaken and the growth rate for the dividends is really ?^(4)=3%. How...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT