Question

In: Finance

Kafue Fisheries paid a dividend of K0.58 per share this year. Dividends at the end of...

Kafue Fisheries paid a dividend of K0.58 per share this year. Dividends at the end of each of the next five years are expected to be as follows:

Year 1 K0.70

Year 2 K0.83

Year 3 K0.96

Year 4 K1.09

Year 5 K1.22

After year 5, dividends are expected to grow indefinitely at 10 percent a year. If your required rate of return for Kafue Fisheries’ common stock is 12 percent, what is the most that you would pay per share for Kafue Fisheries today?

Solutions

Expert Solution

Year Dividends Discount factor @12% Present value
1             0.70                              0.89286                     0.63
2             0.83                              0.79719                     0.66
3             0.09                              0.71178                     0.06
4             1.09                              0.63552                     0.69
5             1.22                              0.56743                     0.69
5          67.10                              0.56743                  38.07
Share price                  40.81
Discount factor= 1/(1+required rate of return)^year
Share price at the end of 5th year= 5th year dividend*(1+growth rate)/ (required rate-growth rate)
=1.22*1.1/(0.12-0.1)=67.10

Related Solutions

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.
Computerplus company already paid $6 dividend per share this year and expects the dividends to grow...
Computerplus company already paid $6 dividend per share this year and expects the dividends to grow 10% annually for the next four years and 7% annually thereafter. If the company decides to invest in a new technology, it estimates that the dividends will not increase for the next 5 years but the growth rate of the dividends will be 11% thereafter. Required rate of return for the stock is 17%. In order to maximize the shareholder value, should the company...
Obtuse Ltd has recorded the following end-of-year share prices and paid dividends: Year Price Dividend 2010...
Obtuse Ltd has recorded the following end-of-year share prices and paid dividends: Year Price Dividend 2010 $1.20 $0.00 2011 $1.35 $0.05 2012 $1.12 $0.00 2013 $1.47 $0.00 2014 $1.71 $0.05 2015 $1.69 $0.00 2016 $1.82 $0.06 2017 $1.87 $0.10 Calculate the yearly returns for this share. Calculate the standard deviation of returns for the company's shares. This question has been answered but I want to know how he arrived at the result of standard deviation (15.58%). Thanks
(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...
APEX Company paid a €1.50 dividend per share this year. Over the next two years, dividends...
APEX Company paid a €1.50 dividend per share this year. Over the next two years, dividends and earnings are expected to grow at a rate of 12%. After two years, the company is expected to grow at a constant rate of 5%. Additional information: Risk-free rate of return 4.5% Equity risk premium 5.0% Beta coefficient 0.9 1) Estimate the required rate of return on equity using the CAPM. 2) Estimate the expected future dividend at the end of year 1....
Fowler, Inc., just paid a dividend of $2.55 per share on itsstock. The dividends are...
Fowler, Inc., just paid a dividend of $2.55 per share on its stock. The dividends are expected to grow at a constant rate of 3.9 percent per year, indefinitely. If investors require a return of 10.4 percent on this stock, what is the current price? What will the price be in three years? In 15 years?
Kilsheimer Company just paid a dividend of $5 per share. Dividends are expected to grow at a constant rate of 7% per year.
Kilsheimer Company just paid a dividend of $5 per share. Dividends are expected to grow at a constant rate of 7% per year. What is the value of the stock to you if the required return is 16%? If the stock is trading for $45 in the market, would you want to buy this stock?
Could I Industries just paid a dividend of $1.10 per share. The dividends are expected to...
Could I Industries just paid a dividend of $1.10 per share. The dividends are expected to grow at a rate of 19 percent for the next six years and then level off to a growth rate of 6 percent indefinitely. If the required return is 14 percent, what is the value of the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places. Price?
1. Membo just paid a dividend of $2.2 per share. Dividends are expected to grow at...
1. Membo just paid a dividend of $2.2 per share. Dividends are expected to grow at 7%, 6%, and 4% for the next three years respectively. After that the dividends are expected to grow at a constant rate of 3% indefinitely. Stockholders require a return of 8 percent to invest in Membo’s common stock. Compute the value of Membo’s common stock today.
Hank’s Barbecue just paid a dividend of $2.05 per share. The dividends are expected to grow...
Hank’s Barbecue just paid a dividend of $2.05 per share. The dividends are expected to grow at a 14.5 percent rate for the next five years and then level off to a 9.5 percent growth rate indefinitely. If the required return is 12.5 percent, what is the value of the stock today? What if the required return is 17.5 percent?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT