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?

Expert Solution

Calculation of stock's current price:
Year	Particulars	Amount	PVF @10%	Present value
1	Dividend	5.00	0.909	4.55
2	Dividend	5.00	0.826	4.13
3	Dividend	5.00	0.751	3.76
4	Dividend	5.00	0.683	3.42
5	Dividend	5.00	0.621	3.10
6	Dividend	5.00	0.564	2.82
7	Dividend	5.00	0.513	2.57
8	Dividend	5.00	0.467	2.33
9	Dividend	5.00	0.424	2.12
10	Dividend	5.00	0.386	1.93
10	Terminal value	74.71	0.386	28.84
Total				59.56
So value of stock is $59.56

Working:
Calculation of dividend:
Terminal value= Dividend(1+growth)/(return-growth)
=5(1+0.031)/(0.10-0.031)
=74.71

jeff jeffy answered 2 years ago

Tesla is expected to pay a dividend of $3 per share at the end of this...

Tesla is expected to pay a dividend of $3 per share at the end of this year; its beta is 0.9; the risk-free rate is 5.2%, and the market risk premium is 6%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $40 per share. What does the market believe will be the stock's price three years from now?

A stock is expected to pay a dividend of $2.74 per share next year, $3.2 two...

A stock is expected to pay a dividend of $2.74 per share next year, $3.2 two years from now, and $3.38 three years from now. After that, the dividend is expected to grow at a constant rate of 5% per year indefinitely. The required return on the stock is 9%. The estimated price per share is $___________. Rounding and Formatting: Do not enter a dollar sign in your response. Round your answer to 2 decimal places. Example: If your answer...

Q:Forever 21 is expected to pay an annual dividend of $2.24 per share in one year,...

Q:Forever 21 is expected to pay an annual dividend of $2.24 per share in one year, which is then expected to grow by 8% per year. The required rate of return is 14%. A:What is the current stock price? B:What is the current stock price if the annual dividend of $2.24 has just been paid? (i.e. paid yesterday or earlier today) C:What is the current stock price if the annual dividend of $2.24 his about to be paid? (i.e. paid...

A company is expected to pay a dividend of $20 per share in one year (t=1),...

A company is expected to pay a dividend of $20 per share in one year (t=1), then $25 for 8 years after that (payments at t=2 ,3,...9), and on the 10th year (t=10) the dividend will be 2% less than at t=9, and will continue to shrink every year after that forever. The required return of the stock is 8%. All rates are effective annual rates. a) What is the price per share of the company's stock now? b) The...

ANZ share price is $35. They are expected to pay a dividend of $2 per share...

ANZ share price is $35. They are expected to pay a dividend of $2 per share in 7 months’ time. The riskfree rate of interest is 6% per annum. Calculate the fair forward price for the delivery of ANZ share in exactly 2 month.

Swanton Industries is expected to pay a dividend of $5 per year for 10 years and...

Swanton Industries is expected to pay a dividend of $5 per year for 10 years and then increase the dividend to $10 per share for every year thereafter. The required rate of return on this stock is 20 percent. What is the estimated stock price for Swanton?

1.) FIN3100 is expected to pay a dividend of $3.00 per share one year from today....

1.) FIN3100 is expected to pay a dividend of $3.00 per share one year from today. FIN3100 required rate of return is rs = 7%. If the expected growth rate is 5%, at what price should the stock sell? B.)FIN3100 just paid a dividend of $6.00, i.e., D0 = $6.00. The dividend is expected to grow by 100% during Year 1, by 50% during Year 2, and then at a constant rate of 7% thereafter. If Silva's required rate of...

SkyTech Ltd. is expected to pay a per-share dividend next year of $30. The market’s consensus...

SkyTech Ltd. is expected to pay a per-share dividend next year of $30. The market’s consensus is that the firm’s dividend growth rate of 2% per year will be maintained in the foreseeable future. SkyTech’s cost of equity is 10% per year. (a) What is the price of a share of SkyTech? (b) Suppose SkyTech’s internal view is that it has an expected average yearly dividend growth of 2% because its return on equity is 8% and management retains...

45. A) In one year, Bold Betties Inc. will pay a $5 per share dividend and...

45. A) In one year, Bold Betties Inc. will pay a $5 per share dividend and it is expected to grow by 4 percent per year. If the required return on this stock is 14 percent, what is the current stock pric B) Suppose you buy a 15 year 4% bond for $940. What is the yield to maturity for this bond? State your answer as a percentage, X.XX%. C) Suppose you purchase a 20-year 5% bond for $980. If...

A stock will pay an annual dividend next year of $5 per share. Dividends will grow...

A stock will pay an annual dividend next year of $5 per share. Dividends will grow at 30% for the following 2 years and then at 5% thereafter. What is V0 if K=0.1?

Question