What is the value of a share of ABC Inc. if they expect to pay a...

What is the value of a share of ABC Inc. if they expect to pay a $5 dividend next year and the dividends are expected to grow at a rate of 3.5%. Assume the investor's required rate of return is 9%.

Expert Solution

Stock price = D1 / r - g

Where,
D1 = Expected Dividend
r= required rate of return
g= growth rate

=5/0.09-0.035

=90.91

jeff jeffy answered 3 years ago

The CEO of ABC Corp believes that each share of ABC will pay a dividend of...

The CEO of ABC Corp believes that each share of ABC will pay a dividend of $2.40 at the end of the current year, $3.25 next year, and $4.40 the following year. After that dividends should grow at a steady rate of 10% a year for the following 5 years. Then the growth rate should drop to 3% for the foreseeable future. a. Given an opportunity cost of 12% annually, what is the value of each ABC share? b. What...

5. ABC, Inc. has just announced today that it would pay $1/share dividends to each shareholder...

5. ABC, Inc. has just announced today that it would pay $1/share dividends to each shareholder of record on June 5, 2019 (Wed). Its current share price is $30 and its shareholders’ average tax rate is 30%. Assume that there are no other news or developments that will affect the stock prices between now and the dates: (A) What will likely be the price of its stock on June 4, 2019 (Tue)? (B) What will likely be the price on...

You buy a share of The Ludwig Corporation stock for $20.70. You expect it to pay...

You buy a share of The Ludwig Corporation stock for $20.70. You expect it to pay dividends of $1.01, $1.14, and $1.2867 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $30.50 at the end of 3 years. Calculate the growth rate in dividends. Round your answer to two decimal places. ------------------ % Calculate the expected dividend yield. Round your answer to two decimal places. ------------------- % Assuming that the calculated growth...

You expect a share of stock to pay dividends of $1.00, $1.25, and $1.50 for each...

You expect a share of stock to pay dividends of $1.00, $1.25, and $1.50 for each of the next 3 years. After that, the dividends will grow at the sustainable growth rate until infinity. a. Calculate the sustainable growth rate assuming the company generates a rate of return of 20% on its equity and maintain a plowback ratio of 0.3. b. Assuming investors expect a 12% rate of return on the stock, what is the price of the stock today?

You expect a share of stock to pay dividends of $2.10, $2.35, and $2.60 in each...

You expect a share of stock to pay dividends of $2.10, $2.35, and $2.60 in each of the next 3 years. You believe the stock will sell for $33.00 at the end of the third year. a. What is the stock price if the discount rate for the stock is 20%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the dividend yield for year 1? (Do not round intermediate calculations. Enter your answer...

You expect a share of stock to pay dividends of $1.40, $1.65, and $1.90 in each...

You expect a share of stock to pay dividends of $1.40, $1.65, and $1.90 in each of the next 3 years. You believe the stock will sell for $19.00 at the end of the third year. a. What is the stock price if the discount rate for the stock is 20%? b. What is the dividend yield for year 1? c. What will be the dividend yield at the start of year 2?

You buy a share of The Ludwig Corporation stock for $24.00. You expect it to pay...

You buy a share of The Ludwig Corporation stock for $24.00. You expect it to pay dividends of $1.06, $1.14, and $1.2260 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $31.51 at the end of 3 years. Calculate the growth rate in dividends. Round your answer to two decimal places. % Calculate the expected dividend yield. Round your answer to two decimal places. % Assuming that the calculated growth rate is...

A share of stock with a beta of 0.76 now sells for $51. Investors expect the stock to pay a year-...

A share of stock with a beta of 0.76 now sells for $51. Investors expect the stock to pay a year-end dividend of $2. The T-bill rate is 3%, and the market risk premium is 7%. a. Suppose investors believe the stock will sell for $53 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do? (Do not round intermediate calculations. Round your opportunity cost of capital calculation as a whole...

Dunder Mifflin will pay its first dividend of $4.35 per share in eight years. They expect...

Dunder Mifflin will pay its first dividend of $4.35 per share in eight years. They expect to grow the dividend at 10% per year afterward. If you require a return of 18%, what is the most you would be willing to pay for the stock today?

ABC Inc stock sells for $30 per share. Put and call options of ABC with strike...

ABC Inc stock sells for $30 per share. Put and call options of ABC with strike price of $34 and expiration of 6 months are available. Both these options are priced at $7. The annual risk free rate is 4%. If the put option is priced correctly, is the call option priced right? If not, what should its price be and how can you take advantage of this arbitrage opportunity?

Question