Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its...

Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 7% per year. If D₀ = $5 and r_s = 16%, what is the value of Maxwell Mining's stock? Round your answer to the nearest cent.

$______

A stock is expected to pay a dividend of $1.00 at the end of the year (i.e., D₁ = $1.00), and it should continue to grow at a constant rate of 3% a year. If its required return is 12%, what is the stock's expected price 2 years from today? Do not round intermediate calculations. Round your answer to the nearest cent.

$______

Solutions

Expert Solution

Given information

For Maxwell mining

dividend at year 0 = $5

return on investment = rc = Ke = 16%

groth rate = g= -7%( negetive)

For other company

dividend at year 1 = D1= $1.00

Groth rate. = g = 3%

Required rate of return = Ke= 12%

Answers will be

1) Value of Maxwell mining stock = $20.2174

2) Stock price expected to be two years from today is =$11.7878

jeff jeffy answered 1 year ago

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