This afternoon, Northern Railways paid an annual dividend of $2.44 per share. The company has been...

This afternoon, Northern Railways paid an annual dividend of $2.44 per share. The company has been reducing the dividends by 15 percent each year (-15% growth rate of the dividend). How much are you willing to pay to purchase stock in this company if your required rate of return is 16 percent?

6.69

7.87

36.6

244

207.40

Solutions

Expert Solution

Calculation of the amount/price that you will be willing to pay to purchase the stock:

Formula:

Price of the bond = *Annual Dividend in year 1 / (Required rate of return - Growth rate)

*Annual Dividend in year 1 = Dividend just paid x (1+ growth rate)

= $2.44 x [1+ (-0.15)]

= $2.44 x 0.85

= $2.074

Price of the bond = $2.074 / [16% - (-15%)]

= $2.074 / 31%

= $2.074 / 0.31

= $6.69 (Answer)

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

This afternoon, Northern Railways paid an annual dividend of $2.44 per share. The company has been...

This afternoon, Northern Railways paid an annual dividend of $2.44 per share. The company has been reducing the dividends by 15 percent each year (-15% growth rate of the dividend). How much are you willing to pay to purchase stock in this company if your required rate of return is 16 percent?

Suppose a stock had an initial price of $32 per share, paid a dividend of $2.44...

Suppose a stock had an initial price of $32 per share, paid a dividend of $2.44 per share during the year, and had an ending share price of $29. Compute the percentage total return. Enter the answer in 4 decimals e.g. 0.1234. Calculate the arithmetic average of the following returns. Year Return 1 0.27 2 0.13 3 -0.11 4 -0.09 5 0.08 Enter the answer with 4 decimals, e.g. 0.1234.

Milwaukee Telecom (MT) just paid a dividend (D0) of $2.44 per share; future dividends are expected...

Milwaukee Telecom (MT) just paid a dividend (D0) of $2.44 per share; future dividends are expected to grow 3% per year indefinitely. The firm’s stock is not publicly traded but data from comparable firms shows an average beta of 1.28; these firms had average debt-equity ratios of 51 and an average tax rate of 28%. MT has a debt-equity ratio of 82 and a tax rate of 32%. The current yield on 10-year U.S. Treasury bonds is 2.8%, and the...

A company just paid a $1.60 per share annual dividend. The company is planning on paying...

A company just paid a $1.60 per share annual dividend. The company is planning on paying $2.90, $3.05, $3.15, and $3.30 a share over the next 4 years, respectively. After that, the dividend will be a constant $3.35 per share per year. What is this stock worth to you per share if you require a 11.25% rate of return? Question 7 options: $26.06 $26.78 $27.51 $28.23 $28.95

A company just paid a $1.60 per share annual dividend. The company is planning on paying...

A company just paid a $1.60 per share annual dividend. The company is planning on paying $2.20, $2.35, $2.45, and $2.60 a share over the next 4 years, respectively. After that, the dividend will be a constant $2.65 per share per year. What is this stock worth to you per share if you require a 9.50% rate of return? $26.37 $27.05 $27.72 $28.40 $29.07

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?

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

ABC Company last paid a $3.00 per share annual dividend. The company is planning on paying...

ABC Company last paid a $3.00 per share annual dividend. The company is planning on paying $3.5.00, $4.5.00, $5.5.00, and $6.5.00 a share over the next four years, respectively. After that the dividend will be a constant $4.50 per share per year. Answer the following questions: a. What is the price of the stock today if investors require a 12 percent rate of return? b. What is the price of the stock today if the sustained dividend of the company...

A company just paid a dividend of $1.95 per share, and that dividend is expected to...

A company just paid a dividend of $1.95 per share, and that dividend is expected to grow at a constant rate of 4.50% per year in the future. The company's beta is 1.65, the market risk premium is 8.5%, and the risk-free rate is 6.50%. What is the company's current stock price?

(a) ABC Company has just paid a dividend of $1.00 per share. Dividends are paid annually....

(a) ABC Company has just paid a dividend of $1.00 per share. Dividends are paid annually. Analysts estimate that dividends per share will grow at a rate of 20% for the next 2 years, at 15% for the subsequent 3 years, and at 3% thereafter. If the shareholders’ required rate of return is 12% per year, then what is the price of the stock today? What will be the ex-dividend price at the end of the first year? What will...

Subjects