Question

Earnings Inc. just paid a dividend of $4.05 per share. It should grow at a rate...

Earnings Inc. just paid a dividend of $4.05 per share. It should grow at a rate of 17% for each of the next two years, then 10% the year after and settle down to a growth rate of 5% per year thereafter. Its beta is 1.2, the market risk premium is 7.6% and T-bills trade at 2%.

How much is the dividend at time 1 (D1)?

How much is the dividend at time 2 (D2)?

How much is the dividend at time 3 (D3)?

What rate of return do investors require on this Earnings Inc. stock? [Enter the value in decimal format. For example, if your answer is 12.34%, enter as 0.1234]

What is the time-3 present value of all cash flows from time 4 on into the future?

At what price should Earnings Inc. stock sell today?

Homework Answers

Answer #1

Answer(1): Dividend = $4.05, g1 = 17%, g2 = 17%, g3 = 10%

Next dividend = Current dividend (1+Growth rate)

Dividend at time 1 (D1) : 4.05 (1+.17) = $4.7385

Dividend at time 2 (D2) : 4.7385 (1+.17) = $5.544

Dividend at time 3 (D3): 5.544 (1+.10) = $6.0984

(2): Calculating of Required rate of return: From CAPM:

Re = Rf + Beta (Rpm)

Where; Re = Required rate of return, Rpm = Market risk premium, Rf = Risk free return.

Given: Re = ?, Rm = 7.6%, Rf = 2%, Beta = 1.2

Putting all the above values in the formula, we get:

Re = .02 + 1.2 (.076)

Re = .1112

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
Earnings Inc. just paid a dividend of $4.05 per share. It should grow at a rate...
Earnings Inc. just paid a dividend of $4.05 per share. It should grow at a rate of 17% for each of the next two years, then 10% the year after and settle down to a growth rate of 5% per year thereafter. Its beta is 1.2, the market risk premium is 7.6% and T-bills trade at 2%. What is the time-3 present value of all cash flows from time 4 on into the future? At what price should Earnings Inc....
Jayhawk Co. just paid a dividend of $2 per share. They anticipate growth of 18% over...
Jayhawk Co. just paid a dividend of $2 per share. They anticipate growth of 18% over the next two years, then 13% the following year and then taper off to 6% per year thereafter. How much is the dividend at time 1 (D1)? How much is the dividend at time 2 (D2)? How much is the dividend at time 3 (D3)? If investors require 12% return on their investment in Jayhawk Co, what is the time-3 present value of all...
-Weston Corporation just paid a dividend of $3.25 a share (i.e., D0 = $3.25). The dividend...
-Weston Corporation just paid a dividend of $3.25 a share (i.e., D0 = $3.25). The dividend is expected to grow 12% a year for the next 3 years and then at 5% a year thereafter. What is the expected dividend per share for each of the next 5 years? D1 , D2, D3, D4, D5 - Tresnan Brothers is expected to pay a $1.70 per share dividend at the end of the year (i.e., D1 = $1.70). The dividend is...
Company has the following dividend stream. D1 = 1 D2 = 3 D3 = 4.05 D4...
Company has the following dividend stream. D1 = 1 D2 = 3 D3 = 4.05 D4 = 5.08 Dividend is expected to be constant after year 4, with a growth rate of 4%. The cost of equity is 10%. What is the stock price, P0 , today?
Weston Corporation just paid a dividend of $1.25 a share (i.e., D0 = $1.25). The dividend...
Weston Corporation just paid a dividend of $1.25 a share (i.e., D0 = $1.25). The dividend is expected to grow 12% a year for the next 3 years and then at 3% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your answers to two decimal places. D1= D2= D3= D4= D5=
Weston Corporation just paid a dividend of $3.75 a share (i.e., D0 = $3.75). The dividend...
Weston Corporation just paid a dividend of $3.75 a share (i.e., D0 = $3.75). The dividend is expected to grow 8% a year for the next 3 years and then at 3% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your answers to two decimal places. d1= d2= d3= d4= d5=
DPS CALCULATION Weston Corporation just paid a dividend of $1.5 a share (i.e., D0 = $1.5)....
DPS CALCULATION Weston Corporation just paid a dividend of $1.5 a share (i.e., D0 = $1.5). The dividend is expected to grow 10% a year for the next 3 years and then at 5% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your answers to two decimal places. D1 = $ D2 = $ D3 = $ D4 = $ D5 = $
DBP Inc. just paid a dividend of $4.05. The expected growth rate of dividend is 4...
DBP Inc. just paid a dividend of $4.05. The expected growth rate of dividend is 4 percent. The required return for investors in the first three years is 15 percent and 13 percent for the following three years. After those six years the required return is 11 percent. What is the current share price of the stock? The multiple choice answers are: a. 52.29 b. 56.34 c. 55.01 d. 51.65 I keep getting 33.92 so I know I'm doing something...
The Island Tourist Company, Inc. just paid a dividend of $2.75 per share, and that dividend...
The Island Tourist Company, Inc. just paid a dividend of $2.75 per share, and that dividend is expected to grow at a constant rate of 4.25% per year in the future. The company's required rate of return on the stock is 11.50%. At what price should the company's stock sell? Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $123.456 then enter as...
A stock just paid an annual dividend of $9.53 per share. The expected growth rate of...
A stock just paid an annual dividend of $9.53 per share. The expected growth rate of the dividend is 5.38%. The required rate of return for the stock is 8.88% per annum. Based on the Constant Dividend Growth Model, what is the expected dividend yield for the stock for the coming year? Answer as a percentage, 2 decimal places (e.g., 12.34% as 12.34).
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT