the dividends are paid at the beginning of every quarter, and the quarterly grow rates are...

the dividends are paid at the beginning of every quarter, and the quarterly grow rates are estimated to be 30%, 25%, 20%, 15% per quarter for the first quarters respectively, and stay constant as 5% thereafter. The effective quarterly interest rate is 10% per quarter. you are on dec 31st today and the next dividends shareholders are just about to receive is $1. what is the expected stock price at the end of 15 years in the future?

Solutions

Expert Solution


Current Dividend	$1
Dividend at the end of Quarter 1	$1.30	(1*(1+0.3)
Dividend at the end of Quarter 2	$1.63	(1.30*(1+0.25)
Dividend at the end of Quarter 3	$1.95	(1.63*(1+0.2)
Dividend at the end of Quarter 4	$2.24	(1.95*(1+0.15)
Dividend at the end of Quarter 5	$2.35	(2.24*(1+0.05)

Present Value of Cash Flow
(Cash flow)/((1+i)^N)
i=discount rate =quarterly interest rate=10%=	0.1
N= Year of Cash Flow
Terminal Value at end of Quarter 4=2.35/(0.1-0.05)
Terminal Value at end of Quarter	$47.09
	N	A	PV=A/(1.1^N)
	Quarter	Cash Flow	Present Value
	1	$1.30	$1.18
	2	$1.63	$1.34
	3	$1.95	$1.47
	4	$2.24	$1.53
	4	$47.09	$32.16
		SUM	$37.69
Price of stock today	$37.69
Expected Price after 15 Years(15*4=60 quarters)	$703.95	(37.69*(1.05^60)

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

The Apple just paid a $0.8 quarterly dividend. The dividends are expected to grow at 20%...

The Apple just paid a $0.8 quarterly dividend. The dividends are expected to grow at 20% per year for the next 3 years. After that, the growth rate is expected to go down to the industry average of 8% per year and stay at this level forever. The required rate of return on Apple is 15% per annum. 1.Draw the time line, showing dividends of Apple. 2.Find the price of Apple stock. 3.Find the value of its growth opportunities (PVGO)....

The ABC COmpany just paid a $0.8 quarterly dividend. The dividends are expected to grow at...

The ABC COmpany just paid a $0.8 quarterly dividend. The dividends are expected to grow at 20% per year for the next 3 years. After that, the growth rate is expected to go down to the industry average of 8% per year and stay at this level forever. The required rate of return on ABC is 15% per annum. 1)Draw the time line, showing dividends of ABC. 2)Find the price of ABC stock. 3)Find the value of its growth opportunities...

Apple has just paid a quarterly dividend of $3.72. Dividends are expected to grow by 10%...

Apple has just paid a quarterly dividend of $3.72. Dividends are expected to grow by 10% for the next 4 quarters, and then grow by 1% thereafter. Apple has a required quarterly return of 5%. What is the value of the expected dividends in four quarters? What is the horizon value in the fourth quarter (P4P4)? What is the value of the stock now?

The common stock of NCP paid $1.35 in dividends last year. Dividends are expected to grow...

The common stock of NCP paid $1.35 in dividends last year. Dividends are expected to grow at an annual rate of 7.90 percent for an indefinite number of years. a. If NCP's current market price is $22.93 per share, what is the stock's expected rate of return? b. If your required rate of return is 9.9 percent, what is the value of the stock for you? c. Should you make the investment?

Jacobson, Inc. paid $3.00 in dividends to common stockholderslast year. Dividends are expected to grow...

Jacobson, Inc. paid $3.00 in dividends to common stockholders last year. Dividends are expected to grow at sustainable growth rate for an indefinite number of years. Jacobson has a return on equity of 30% with dividend payout ratio of 60%.If Jacobson’s stock current market price is $33.60, what is the stock’s expected rate of return?If your required rate of return is 18 percent, what is the value of the stock for you?

The common stock of NCP paid ?$1.31 in dividends last year. Dividends are expected to grow...

The common stock of NCP paid ?$1.31 in dividends last year. Dividends are expected to grow at an annual rate of 7.40 percent for an indefinite number of years. a. If your required rate of return is 9.70 percent?, what is the value of the stock for? you? b. Should you make the? investment?

The common stock of NCP paid $1.25 in dividends last year. Dividends are expected to grow...

The common stock of NCP paid $1.25 in dividends last year. Dividends are expected to grow at an annual rate of 9.10 percent for an indefinite number of years. a. If NCP's current market price is $27.95 per share, the stock's expected rate of return is____%. (Round to two decimal places.) b. If your required rate of return is 11.1 percent, the value of the stock would be $ _____. (Round to the nearest cent.) c. You should (buy or...

Quarterly deposits are made into a fund at the beginning of each quarter starting today for...

Quarterly deposits are made into a fund at the beginning of each quarter starting today for 5 years. The first 8 deposits are $1000 each and deposits increase by 1% per quarter thereafter. If the fund earns 8% effective annually, find the accumulated value at the end of 5 years. Please explain which equations you used and do not use excel.

1. A stock just paid a dividend of $0.75. This quarterly dividend is expected to grow...

1. A stock just paid a dividend of $0.75. This quarterly dividend is expected to grow at a rate of 4% for the next 10 years, after which it will grow at a rate of -2% in perpetuity. What is the price of the stock if the required return is 12% (all rates are APR with quarterly compounding)? 2. A firm has a P/E ratio of 18.5, a payout ratio of 50%, and a required return of 12% per annum....

A stock just paid a dividend this morning of $1.30. Dividends are expected to grow at...

A stock just paid a dividend this morning of $1.30. Dividends are expected to grow at 14.00% for the next two years. After year 2, dividends are expected to grow at 8.06 % for the following three years. At that point, dividends are expected to grow at a rate of 6.00% forever. If investors require a return of 15.00% to own the stock, what is its intrinsic value?

Subjects