Question

Vandelay Industries just paid a dividend of $2.50 that they will grow by 30% per year...

Vandelay Industries just paid a dividend of $2.50 that they will grow by 30% per year for the next three years, then at a constant 6% per year. If you require an 8% return, what is the most you would be willing to pay for the stock today?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Required rate= 8.00%
Year Previous year dividend Dividend growth rate Dividend current year Horizon value Total Value Discount factor Discounted value
1 2.5 30.00% 3.25 3.25 1.08 3.0093
2 3.25 30.00% 4.225 4.225 1.1664 3.62226
3 4.225 30.00% 5.4925 291.103 296.5955 1.259712 235.44707
Long term growth rate (given)= 6.00% Value of Stock = Sum of discounted value = 242.08
Where
Current dividend =Previous year dividend*(1+growth rate)^corresponding year
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 3 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor
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
Hubbard Industries just paid a common dividend, D0, of $1.20. It expects to grow at a...
Hubbard Industries just paid a common dividend, D0, of $1.20. It expects to grow at a constant rate of 2% per year. If investors require a 12% return on equity, what is the current price of Hubbard's common stock? Carlysle Corporation has perpetual preferred stock outstanding that pays a constant annual dividend of $1.30 at the end of each year. If investors require an 6% return on the preferred stock, what is the price of the firm's perpetual preferred stock?...
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?
Peratti Industries recently paid a $2.50 dividend per share. The dividend of the company is expected...
Peratti Industries recently paid a $2.50 dividend per share. The dividend of the company is expected to grow by 30 percent next year, 25 percent the following year, and 20 percent the year after before growing at constant rate of 6 percent growth that continue forever. Peratti Industries’ beta is 0.7619, the risk-free rate of interest is 1.6 percent, and the rate of return on market is 10 percent. what is the current stock price of Peratti Industries? What was...
Nachman Industries just paid a dividend of D0 = $2.50. Analysts expect the company's dividend to...
Nachman Industries just paid a dividend of D0 = $2.50. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock’s current market value? Do not round intermediate calculations. Please show work
A) Hubbard Industries just paid a common dividend, D0, of $2.00. It expects to grow at...
A) Hubbard Industries just paid a common dividend, D0, of $2.00. It expects to grow at a constant rate of 4% per year. If investors require a 9% return on equity, what is the current price of Hubbard's common stock? Do not round intermediate calculations. Round your answer to the nearest cent. B) Carlysle Corporation has perpetual preferred stock outstanding that pays a constant annual dividend of $1.20 at the end of each year. If investors require an 7% return...
Show your work in solving the problem Membo just paid a dividend of $2.2 per share....
Show your work in solving the problem Membo just paid a dividend of $2.2 per share. Dividends are expected to grow at 7%, 6%, and 4% for the next three years respectively. After that the dividends are expected to grow at a constant rate of 3% indefinitely. Stockholders require a return of 8 percent to invest in Membo’s common stock. Compute the value of Membo’s common stock today.
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?
1. You buy a stock from which you expect to receive an annual dividend of $2.50...
1. You buy a stock from which you expect to receive an annual dividend of $2.50 for each of the three years that you plan on holding it. At the end of year three, you expect o be able to sell the stock for $185. What is the most that you should be willing to pay today for a share of this company if you want to earn a return of atleast 9%? A) $68.75 B) $149.18 C) $192. 50...
ZZZ Industries just paid a dividend of $1.35 per share. The dividends are expected to grow...
ZZZ Industries just paid a dividend of $1.35 per share. The dividends are expected to grow at a 27 percent rate for the next 5 years and then level off to a 3 percent growth rate indefinitely. If the required return is 8.51 percent, what is the value (in $) of the stock today? Answer to two decimals, carry intermediate calculations to four decimals. ****show step****
Hubbard Industries just paid a common dividend, D0, of $1.70. It expects to grow at a...
Hubbard Industries just paid a common dividend, D0, of $1.70. It expects to grow at a constant rate of 3% per year. If investors require a 11% return on equity, what is the current price of Hubbard's common stock? Round your answer to the nearest cent. Do not round intermediate calculations.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT