Question

In: Finance

Reddick Enterprises' stock is going to pay a dividend of $5 in the next year. Since...

Reddick Enterprises' stock is going to pay a dividend of $5 in the next year. Since then the dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock, rs, is 9.00%. What is the present value of the 3rd year dividend? What is the price of the stock at the end of the 3rd year? (6 points Hint: to solve for P3 you need to use Div4)

Solutions

Expert Solution

1)present value of 3 year dividend =PVF 9%,D3

               = .77218* 5.565125

              = $ 4.2973

2)D4 =D1(1+g)^3

     = 5 (1+.055)^3

     = 5*1.17424

     = 5.8712

Price at year3 =D4/(Rs-g)

           = 5.8712/ (.09-.055)

           = 5.8712 /.035

           = $ 167.75 per share

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Reddick Enterprises' stock is going to pay a dividend of $5 in the next year. Since then the dividend is projected to increase at a constant rate of 5.50% per year
Reddick Enterprises' stock is going to pay a dividend of $5 in the next year. Since then the dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock, r, is 9.00%, what is the present value of the 3rd year dividend? What is the price of the stock at the end of the 3rd year? (6 points Hint: to solve for Pa you need to use Div4)
A stock expects to pay a dividend of $3.72 per share next year. The dividend is...
A stock expects to pay a dividend of $3.72 per share next year. The dividend is expected to grow at 25 percent per year for three years followed by a constant dividend growth rate of 4 percent per year in perpetuity. What is the expected stock price per share 5 years from today, if the required return is 12 percent?
Stock C is expected to pay a dividend of $5.80 next year. Thereafter, dividend growth is...
Stock C is expected to pay a dividend of $5.80 next year. Thereafter, dividend growth is expected to be 19.00% a year for five years (i.e., years 2 through 6) and zero thereafter. If the market capitalization rate for each stock is 9.00%, what is the stock price for each of the stock C?
1) IBM expects to pay a dividend of $5 next year and expects these dividends to...
1) IBM expects to pay a dividend of $5 next year and expects these dividends to grow at 77​% a year. The price of IBM is $85 per share. What is​ IBM's cost of equity ​capital? 2) Since your first​ birthday, your grandparents have been depositing $1,200into a savings account on every one of your birthdays. The account pays 9​% interest annually. Immediately after your grandparents make the deposit on your 18th​ birthday, the amount of money in your savings...
Dvorak Enterprises is expected to pay a stable dividend of $5 per share per year for...
Dvorak Enterprises is expected to pay a stable dividend of $5 per share per year for the next 10 years. After that, investors anticipate that the dividends will grow at a constant rate of 3.1 percent per year indefinitely. If the required rate of return on this stock is 10 percent, what is the fair market value of a share of Dvorak?
Consider the stock of SLB Inc., a growth stock that will pay no dividend the next...
Consider the stock of SLB Inc., a growth stock that will pay no dividend the next year. Starting in year two, the company will pay a dividend of $3 and will increase it by 10% for the next three years. Afterwards, dividends will grow by 5% per year indefinitely. The stock has a required rate of return of 15%.
Consider the stock of SLB Inc., a growth stock that will pay no dividend the next...
Consider the stock of SLB Inc., a growth stock that will pay no dividend the next year. Starting in year two, the company will pay a dividend of $3 and will increase it by 10% for the next three years. Afterwards, dividends will grow by 5% per year indefinitely. The stock has a required rate of return of 15%. Answer the following questions. (SHOW YOUR WORK. Correct answers with no formulas/calculations receive no credit) a) What is the value (price)...
Consider the stock of SLB Inc., a growth stock that will pay no dividend the next...
Consider the stock of SLB Inc., a growth stock that will pay no dividend the next year. Starting in year two, the company will pay a dividend of $3 and will increase it by 10% for the next three years. Afterwards, dividends will grow by 5% per year indefinitely. The stock has a required rate of return of 15%. a) What is the value (price) of the stock today (i.e. P0)? Show your work and formulas.b) What is the price...
Consider the stock of SLB Inc., a growth stock that will pay no dividend the next...
Consider the stock of SLB Inc., a growth stock that will pay no dividend the next year. Starting in year two, the company will pay a dividend of $3 and will increase it by 10% for the next three years. Afterwards, dividends will grow by 5% per year indefinitely. The stock has a required rate of return of 15%. Answer the following questions. (SHOW YOUR WORK. Correct answers with no formulas/calculations receive no credit) a) What is the value (price)...
Consider the stock of SLB Inc., a growth stock that will pay no dividend the next...
Consider the stock of SLB Inc., a growth stock that will pay no dividend the next year. Starting in year two, the company will pay a dividend of $3 and will increase it by 10% for the next three years. Afterwards, dividends will grow by 5% per year indefinitely. The stock has a required rate of return of 15%. Answer the following questions. (SHOW YOUR WORK. Correct answers with no formulas/calculations receive no credit) a) What is the value (price)...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT