You are analyzing Jillian’s Jewelry (JJ) stock for a possible purchase. JJ just paid a dividend...

You are analyzing Jillian’s Jewelry (JJ) stock for a possible purchase. JJ just paid a dividend of $1.25 yesterday. You expect the dividend to grow at the rate of 6% per year for the next 3 years; if you buy the stock, you plan to hold it for 3 years and then sell it.

What dividends do you expect for JJ stock over the next 3 years? In other words, calculate D₁, D₂ and D₃. Note that D₀ = $1.25. Do not round intermediate calculations. Round your answers to the nearest cent.

D₁ = $

D₂ = $

D₃ = $
JJ stock has a required return of 13%, and so this is the rate you'll use to discount dividends. Find the present value of the dividend stream; that is, calculate the PV of D₁, D₂, and D₃, and then sum these PVs. Do not round intermediate calculations. Round your answer to the nearest cent.

$
JJ stock should trade for $22.54 3 years from now (i.e., you expect = $22.54). Discounted at a 13% rate, what is the present value of this expected future stock price? In other words, calculate the PV of $22.54. Do not round intermediate calculations. Round your answer to the nearest cent.

$
If you plan to buy the stock, hold it for 3 years, and then sell it for $22.54, what is the most you should pay for it? Do not round intermediate calculations. Round your answer to the nearest cent.

$
Use the constant growth model to calculate the present value of this stock. Assume that g_L = 6%, and it is constant. Do not round intermediate calculations. Round your answer to the nearest cent.

$
Is the value of this stock dependent on how long you plan to hold it? In other words, if your planned holding period were 2 years or 5 years rather than 3 years, would this affect the value of the stock today, ? Explain your answer.
I. Yes. The value of the stock is dependent upon the holding period. The value calculated in Parts a through d is the value for a 3-year holding period. It is not equal to the value calculated in Part e. Any other holding period would produce a different value of .
II. Yes. The value of the stock is dependent upon the holding period due to the fact that the value is determined as the present value of all future expected dividends.
III. No. The value of the stock is not dependent upon the holding period. The value calculated in Parts a through d is the value for a 3-year holding period. It is equal to the value calculated in Part e. Any other holding period would produce the same value of .
IV. No. The value of the stock is not dependent upon the holding period unless the growth rate remains constant for the foreseeable future.
V. Yes. The value of the stock is dependent upon the holding period as long as the growth rate remains constant for the foreseeable future.

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

You are analyzing Jillian’s Jewelry (JJ) stock for a possible purchase. JJ just paid a dividend of $1.00 yesterday.

You are analyzing Jillian’s Jewelry (JJ) stock for a possible purchase. JJ just paid a dividend of $1.00 yesterday. You expect the dividend to grow at the rate of 5% per year for the next 3 years, if you buy the stock; you plan to hold it for 3 years and then sell it.What dividends do you expect for JJ stock over the next 3 years? In other words, calculate D1, D2 and D3. Note that D0 = $1.00. Round...

You are analyzing a company's stock for a possible purchase. They just paid a dividend of...

You are analyzing a company's stock for a possible purchase. They just paid a dividend of $1.75, yesterday. You expect the dividend to grow at the rate of 7% per year for the next three years; if you buy the stock, you plan to hold it for 3 years and then sell it. The stock has a required return of 12%. The stock will sell in three years at a price of $29.16 1.What dividends do you expect for...

Ashley is considering the purchase of a stock that has just paid a dividend of $0.72,...

Ashley is considering the purchase of a stock that has just paid a dividend of $0.72, today. The dividend is expected to grow at a rate of 2.8 percent per year and the market requires a return of 8% on assets of similar risks. What is the price that Ashley should pay for this stock? $14.23 $17.13 $10.28 $17.57

a. A stock just paid a dividend of $1.04. The dividend is expected to grow at...

a. A stock just paid a dividend of $1.04. The dividend is expected to grow at 26.98% for three years and then grow at 4.97% thereafter. The required return on the stock is 11.63%. What is the value of the stock? b. A stock just paid a dividend of $1.17. The dividend is expected to grow at 22.53% for five years and then grow at 4.80% thereafter. The required return on the stock is 14.27%. What is the value of...

A stock just paid a dividend of $2.40. The dividend is expected to grow at a...

A stock just paid a dividend of $2.40. The dividend is expected to grow at a rate of 5% forever. If the stock is currently selling for $25.00, what return do investors require to hold this stock? 18%, 17%, 16%, 15% A project is projected to cost $2,000,000 to undertake. It will generate positive cash inflows as follows: Year 1 - $400,000; Year 2 – 500,000; Year 3 - $650,000; Year 4 – 700,000; Year 5 – 800,000. What is...

A stock just paid a dividend of $2. The stock is expected to increase its dividend...

A stock just paid a dividend of $2. The stock is expected to increase its dividend payment by 50% per year for the next 3 years. After that, dividends will grow at a rate of 5% forever. If the required rate of return is 7%, what is the price of the stock today?

Assume that a stock just paid a dividend of $2.05. You believe that for the next...

Assume that a stock just paid a dividend of $2.05. You believe that for the next three years the growth rate will be 8%. After that you believe the company’s growth will slow to a long-run growth rate of 3%. The required return on the firm’s equity is 9%. What is your estimated value of the stock?

A stock just paid a dividend of $2.47. The dividend is expectedto grow at 23.57%...

A stock just paid a dividend of $2.47. The dividend is expected to grow at 23.57% for three years and then grow at 4.01% thereafter. The required return on the stock is 13.91%. What is the value of the stock? Round to 2 decimal places. Also, a stock just paid a dividend of $1.49. The dividend is expected to grow at 25.13% for five years and then grow at 3.72% thereafter. The required return on the stock is 11.24%. What...

A stock just paid a dividend of $2.27. The dividend is expected to grow at 22.36%...

A stock just paid a dividend of $2.27. The dividend is expected to grow at 22.36% for five years and then grow at 3.96% thereafter. The required return on the stock is 10.02%. What is the value of the stock?

A stock just paid a dividend of $1.28. The dividend is expected to grow at 27.28%...

A stock just paid a dividend of $1.28. The dividend is expected to grow at 27.28% for three years and then grow at 3.92% thereafter. The required return on the stock is 11.35%. What is the value of the stock? A stock just paid a dividend of $1.95. The dividend is expected to grow at 25.66% for five years and then grow at 3.74% thereafter. The required return on the stock is 11.13%. What is the value of the stock?...

Subjects