The last dividend paid by New Technologies was an annual dividend of $1.40 a share. Dividends...

The last dividend paid by New Technologies was an annual dividend of $1.40 a share. Dividends for the next 3 years will be increased at an annual rate of 8 percent. After that, dividends are expected to increase by 3 percent each year. The discount rate is 16 percent. What is the current value of this stock?

Solutions

Expert Solution

D1=(1.4*1.08)=1.512

D2=(1.512*1.08)=1.63296

D3=(1.63296*1.08)=1.7635968

Value after year 3=(D3*Growth rate)/(Discount rate-Growth rate)

=(1.7635968*1.03)/(0.16-0.03)

=13.9731131

Hence current value=Future dividend and value*Present value of discounting factor(rate%,time period)

=1.512/1.16+1.63296/1.16^2+1.7635968/1.16^3+13.9731131/1.16^3

=$12.6(Approx)

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

ABC Corp. just paid a dividend of $1.40 per share. The dividends are expected to grow...

ABC Corp. just paid a dividend of $1.40 per share. The dividends are expected to grow at 25 percent for the next 7 years and then level off to a 7 percent growth rate indefinitely. If the required return is 15 percent, what is the price of the stock today?

The last dividend paid by Coppard Inc. was $1.40. The dividend growth rate is expected to...

The last dividend paid by Coppard Inc. was $1.40. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (r s) is 12%, what is its current stock price? Answers: a. $29.52 b. $32.49 c. $31.20 d. $33.50 e. $34.50

Q1) Last year, a company paid a dividend of $0.75 per share. Dividends for the next...

Q1) Last year, a company paid a dividend of $0.75 per share. Dividends for the next year, will increase by 167% and then by 50% in the following year. After that, dividends are expected to grow at a constant rate of 10% every year. If the required return for investments of similar risk is 15% and the market price of the stock is $55, would you buy the stock today? Explain your answer.

Four Corners Markets paid an annual dividend of $1.42 a share last month.

Four Corners Markets paid an annual dividend of $1.42 a share last month. Today, the company announced that future dividends will be increasing by 1.3 percent annually. If you require a return of 14.6 percent, how much are you willing to pay to purchase one share of this stock today? Would you buy the stock for $11/share? Explain.

BBB company just paid their annual dividend of $1.20 per share. They are projecting dividends of...

BBB company just paid their annual dividend of $1.20 per share. They are projecting dividends of $1.50 and $1.80 over the next two years, respectively. After that, the dividend will increase by 3% every year. What is the amount you are willing to pay for one share of this stock if your required return is 10 percent?

1. a. KL Airlines paid an annual dividend of $1.18 a share last month. The company...

1. a. KL Airlines paid an annual dividend of $1.18 a share last month. The company is planning on paying $1.50, $1.75, and $1.80 a share over the next 3 years, respectively. After that, the dividend will be constant at $1.50 per share per year. What is the market price of this stock if the market rate of return is 10.5 percent? b.ABC Ltd. plans to pay a yearly dividend of $0.50 over the next 10 years. After which the...

The Leprechaun Corp. last paid a $1.50 per share annual dividend. The company is planning on...

The Leprechaun Corp. last paid a $1.50 per share annual dividend. The company is planning on paying $3.00, $5.00, $7.50, and $10.00 a share over the next four years, respectively. After that the dividend will be a constant $2.50 per share per year. What is the market price of this stock if the market rate of return is 15%? Group of answer choices $17.04 $22.39 $26.57 $29.08 $33.71

Southern Home Cookin' just paid its annual dividend of $0.65 a share. Dividends are expected to...

Southern Home Cookin' just paid its annual dividend of $0.65 a share. Dividends are expected to grow at 6% forever. The stock has a market price of $13 and a beta of 1.12. The return on the U.S. Treasury bill is 2.5 percent and the market risk premium is 6.8 percent. What is the cost of equity?

QUESTION 1 A company just paid a dividend of $1.40 per share. The consensus forecast of...

QUESTION 1 A company just paid a dividend of $1.40 per share. The consensus forecast of financial analysts is a dividend of $1.60 per share next year, $2.30 per share two years from now, and $2.60 per share in three years. You expect the price of the stock to be $25 in two years. If the required rate of return is 9% per year, what would be a fair price for this stock today? (Answer to the nearest penny.)

Rocket Co. has just paid a dividend of $1.15 per share. The firm pays annual dividends....

Rocket Co. has just paid a dividend of $1.15 per share. The firm pays annual dividends. It is expected by analysts that the firm's earnings will grow by 8.2% per year over next six years. After that, the earnings will most likely grow at the current industry average of 5.5% per year. Analysts do not expect any changes in the payout ratio of the firm. The cost of capital is 12%. The today’s share price is closest to (nearest cents):...

Subjects