Question

FinanceIsFun just paid a dividend of $1.60 on each share of its stock. The company expects...

FinanceIsFun just paid a dividend of $1.60 on each share of its stock. The company expects that the dividends will increase at a constant rate of 6 percent per year in perpetuity. Investors require a 10 percent return on this company's stock.

  

Calculate the current stock price. (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
  Current price $   
Calculate the stock price in three years. (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
  Stock price $   
Calculate the stock price in 12 years. (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
  Stock price $   
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

a)

Current stock price = D1 / required rate - growth rate

Current stock price = (1.6 * 1.06) / 0.1 - 0.06

Current stock price = 1.696 / 0.04

Current stock price = $42.40

b)

Stock price in 3 years = Present value (1 + r)n

Stock price in 3 years = 42.4 (1 + 0.06)3

Stock price in 3 years = 42.4 * 1.191016

Stock price in 3 years = $50.50

c)

Stock price in 12 years = Present value (1 + r)n

Stock price in 12 years = 42.4 (1 + 0.06)12

Stock price in 12 years = 42.4 * 2.012196

Stock price in 12 years = $85.32

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 Herjavec Co. just paid a dividend of $1.35 per share on its stock. The dividends...
The Herjavec Co. just paid a dividend of $1.35 per share on its stock. The dividends are expected to grow at a constant rate of 3 percent per year indefinitely. Investors require a return of 10 percent on the company's stock. What is the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current price           $   What will the stock price be in three years? (Do not round intermediate calculations...
The Jackson–Timberlake Wardrobe Co. just paid a dividend of $1.85 per share on its stock. The...
The Jackson–Timberlake Wardrobe Co. just paid a dividend of $1.85 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 12 percent on the company's stock.    What is the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)   Current price $ What will the stock price be in three years? (Do not round intermediate...
The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.20 per share on its stock. The...
The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.20 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 10 percent on the company's stock. a. What is the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will the stock price be in 3 years? (Do not round intermediate calculations and...
The Nearside Co. just paid a dividend of $1.55 per share on its stock. The dividends...
The Nearside Co. just paid a dividend of $1.55 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year, indefinitely. Investors require a return of 14 percent on the stock.    a. What is the current price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will the price be in three years? (Do not round intermediate calculations and round your answer...
Co. just paid a dividend of $1.30 on each share of its stock. The company expects...
Co. just paid a dividend of $1.30 on each share of its stock. The company expects that the dividends will increase at a constant rate of 4 percent per year in perpetuity. Investors require a 14 percent return on this company's stock. Calculate the current stock price. Calculate the stock price in three years. Calculate the stock price in 12 years.
Bretton, Inc., just paid a dividend of $3.00 on its stock. The growth rate in dividends...
Bretton, Inc., just paid a dividend of $3.00 on its stock. The growth rate in dividends is expected to be a constant 4 percent per year, indefinitely. Investors require a return of 11 percent on the stock for the first three years, a rate of return of 9 percent for the next three years, and then a return of 7 percent thereafter. What is the current share price for the stock? (Do not round intermediate calculations and round your answer...
Company just issued a dividend of $1.60 per share on its stock. The company is expected...
Company just issued a dividend of $1.60 per share on its stock. The company is expected to have a constant 5 percent growth rate in dividends. Use the constant growth model from chapter 7. Yes the class material builds on itself. Required: If the stock sells for $40 a share, what is the company’s cost of equity? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Sea Side, Inc., just paid a dividend of $2.32 per share on its stock. The growth...
Sea Side, Inc., just paid a dividend of $2.32 per share on its stock. The growth rate in dividends is expected to be a constant 5.9 percent per year indefinitely. Investors require a return of 22 percent on the stock for the first three years, then a return of 17 percent for the next three years, and then a return of 15 percent thereafter. What is the current share price? (Do not round intermediate calculations. Round your answer to 2...
Sea Side, Inc., just paid a dividend of $2.24 per share on its stock. The growth...
Sea Side, Inc., just paid a dividend of $2.24 per share on its stock. The growth rate in dividends is expected to be a constant 6.3 percent per year indefinitely. Investors require a return of 20 percent on the stock for the first three years, then a return of 15 percent for the next three years, and then a return of 13 percent thereafter. What is the current share price? (Do not round intermediate calculations. Round your answer to 2...
Sea Side, Inc., just paid a dividend of $2.24 per share on its stock. The growth...
Sea Side, Inc., just paid a dividend of $2.24 per share on its stock. The growth rate in dividends is expected to be a constant 6.3 percent per year indefinitely. Investors require a return of 20 percent on the stock for the first three years, then a return of 15 percent for the next three years, and then a return of 13 percent thereafter. What is the current share price? (Do not round intermediate calculations. Round your answer to 2...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT