Question

Blossom Inc., is expected to grow at a rate of 18.000 percent for the next five...

Blossom Inc., is expected to grow at a rate of 18.000 percent for the next five years and then settle to a constant growth rate of 9.000 percent. The company recently paid a dividend of $2.35. The required rate of return is 14.000 percent.

Present value of dividends is $13.05

Value of stock is $117.20

What is the value of the stock today?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Last Dividend, D0 = $2.35

Growth rate for next 5 years is 18% and a constant growth rate (g) of 9% thereafter

D1 = $2.3500 * 1.18 = $2.7730
D2 = $2.7730 * 1.18 = $3.2721
D3 = $3.2721 * 1.18 = $3.8611
D4 = $3.8611 * 1.18 = $4.5561
D5 = $4.5561 * 1.18 = $5.3762
D6 = $5.3762 * 1.09 = $5.8601

Required Return, rs = 14.00%

P5 = D6 / (rs - g)
P5 = $5.8601 / (0.14 - 0.09)
P5 = $117.2020

P0 = $2.7730/1.14 + $3.2721/1.14^2 + $3.8611/1.14^3 + $4.5561/1.14^4 + $5.3762/1.14^5 + $117.2020/1.14^5
P0 = $73.92

So, current value of stock is $73.92

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
Revarop, Inc., is a fast-growth company that is expected to grow at a rate of 23...
Revarop, Inc., is a fast-growth company that is expected to grow at a rate of 23 percent for the next four years. It is then expected to grow at a constant rate of 6 percent. Revarop's first dividend, of $4.25, will be paid in Year 3. If the required rate of return is 17 percent, what is the current value of the stock if dividends are expected to grow at the same rate as the company? Please include steps on...
Blossom Inc. has a patent that will expire in two years. The firm is expected to...
Blossom Inc. has a patent that will expire in two years. The firm is expected to grow at 9.9 percent for the next two years and dividends will be paid at year end. It just paid a dividend of $1. After two years, the growth rate will decline to 3.9 percent immediately, and the firm will grow at this rate forever. If the required rate of return is 10 percent, value the firm’s current share price. PLEASE SHOW STEPS!
Carla Vista, Inc., is a fast-growth company that is expected to grow at a rate of...
Carla Vista, Inc., is a fast-growth company that is expected to grow at a rate of 23 percent (per year) for the next four years. It is then expected to grow at a constant rate of 6 percent. Carla Vista’s first dividend, of $3.60, will be paid in year 3. If the required rate of return is 20 percent, what is the current value of the stock if dividends are expected to grow at the same rate as the company?...
fast grow corporation is expecting dividends to grow at 20% rate for the next two years....
fast grow corporation is expecting dividends to grow at 20% rate for the next two years. the corporation just paid a $2 dividend and the next dividend will be paid one year from now. after two years of rapid growth, dividends are expected to grow at a constant rate 9%forever. if the required return is 14%, what is the value of fast grow corporation common stock today?
is expected to grow rapidly at a rate of 35 percent for the next seven years....
is expected to grow rapidly at a rate of 35 percent for the next seven years. The company's first dividend, to be paid three years from now, will be $5. After seven years, the company (and the dividends it pays) will grow at a rate of 9.50 percent. What is the value of Diaz stock with a required rate of return of 14 percent? Value of stock in $
Crane Corp. is expected to grow rapidly at a rate of 35 percent for the next...
Crane Corp. is expected to grow rapidly at a rate of 35 percent for the next seven years. The company's first dividend, to be paid three years from now, will be $5. After seven years, the company (and the dividends it pays) will grow at a rate of 8.1 percent. What is the value of Crane stock with a required rate of return of 14 percent?
Janicex Co. is growing quickly. Dividends are expected to grow at ________ percent for the next...
Janicex Co. is growing quickly. Dividends are expected to grow at ________ percent for the next three years,( rate is equal to 63, then 33 percent is the growth rate). The growth rate will be 8 percent in year 4 and the growth rate will fall off to a constant 6 percent thereafter. If the required return is 11 percent, and the company just paid a dividend of $1.90, what is the current share price
Janicex Co. is growing quickly. Dividends are expected to grow at ________ percent for the next...
Janicex Co. is growing quickly. Dividends are expected to grow at ________ percent for the next three years,( rate is equal to 63, then 33 percent is the growth rate). The growth rate will be 8 percent in year 4 and the growth rate will fall off to a constant 6 percent thereafter. If the required return is 11 percent, and the company just paid a dividend of $1.90, what is the current share price
Oriole Corp. is expected to grow rapidly at a rate of 35 percent for the next...
Oriole Corp. is expected to grow rapidly at a rate of 35 percent for the next seven years. The company's first dividend, to be paid three years from now, will be $5. After seven years, the company (and the dividends it pays) will grow at a rate of 6.1 percent. What is the value of Oriole stock with a required rate of return of 14 percent? (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.20.)
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 21 percent...
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 21 percent for the next 3 years, then falls to a constant growth rate of 15 percent for another three year, then the growth rate will fall off to a constant 3 percent thereafter.    If the required return is 7 percent and the company just paid a $3.00 dividend. what is the current share price?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT