LeoTech Inc. just paid a dividend of $12 to its stockholders. The dividend will grow at...

LeoTech Inc. just paid a dividend of $12 to its stockholders. The dividend will grow at 7% over the next 7 years. After 7 years, the dividends will remain constant forever. If the discount rate is 4%, what is the value of LeoTech’s stock today?

Expert Solution

The value of LeoTech’s stock today is computed as shown below:

= Dividend in year 1 / (1 + discount rate )¹ + Dividend in year 2 / (1 + discount rate )² + Dividend in year 3 / (1 + discount rate )³ + Dividend in year 4 / (1 + discount rate )⁴ + Dividend in year 5 / (1 + discount rate )⁵ + Dividend in year 6 / (1 + discount rate )⁶ + Dividend in year 7 / (1 + discount rate )⁷ + 1 / (1 + discount rate )⁷ [ ( Dividend in year 8 / discount rate) ]

= ( $ 12 x 1.07 ) / 1.04¹ + ( $ 12 x 1.07² ) / 1.04² + ( $ 12 x 1.07³ ) / 1.04³ + ( $ 12 x 1.07⁴ ) / 1.04⁴ + ( $ 12 x 1.07⁵ ) / 1.04⁵ + ( $ 12 x 1.07⁶ ) / 1.04⁶ + ( $ 12 x 1.07⁷ ) / 1.04⁷ + 1 / 1.07⁷ x [ ( $ 12 x 1.07⁷ ) / 0.04 ]

= $ 12.84 / 1.04 + $ 13.7388 / 1.04² + $ 14.700516 / 1.04³ + $ 15.72955212 / 1.04⁴ + $ 16.83062077 / 1.04⁵ + $ 18.00876422 / 1.04⁶ + $ 19.26937772 / 1.04⁷ + $ 481.7344429 / 1.04⁷

= $ 460.35 Approximately

Feel free to ask in case of any query relating to this question

jeff jeffy answered 1 year ago

12. XYZ, Inc. just paid $2.00 dividend. Dividends are expected to grow at a 20% rate...

12. XYZ, Inc. just paid $2.00 dividend. Dividends are expected to grow at a 20% rate for the next five years. After that, the company has stated that the annual dividend will be $2.50 per share indefinitely. The required rate of return is 10%. (a) What is this stock worth to you per share today? (b) What is the expected stock price next year? (c) What is the expected stock price 20 years from today? Could you explain the question...

Airlines Inc. just paid a $3.50 dividend, and it is expected to grow at 45% for...

Airlines Inc. just paid a $3.50 dividend, and it is expected to grow at 45% for the next 3 years. After 3 years the dividend is expected to grow at the rate of 4% indefinitely. If the required return is 9.8%, what is the stock's value today? ---This question needs to go into a spreadhseet on excel and I am unsure of the values for each row and column or the equations associated. A walkthrough would be greatly appreciated!---

A firm just paid a dividend of $4.20. The dividend is expectedto grow at a...

A firm just paid a dividend of $4.20. The dividend is expected to grow at a constant rate of 4.06% forever and the required rate of return is 10.76%. What is the value of the stock?

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...

Paradise Tours, Inc. just paid a dividend of $5.95. Analysts expect the company's dividend to grow...

Paradise Tours, Inc. just paid a dividend of $5.95. Analysts expect the company's dividend to grow by 35% this year, by 20% in year 2, and at a constant rate of 6% in Year 3 and thereafter. The required rate of return on PTI's stock is 14.75%. What is the best estimate of the stock's current intrinsic value? Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example,...

ABC, Inc. just paid a dividend of $1.2. The dividends are expected to grow at 5.09%...

ABC, Inc. just paid a dividend of $1.2. The dividends are expected to grow at 5.09% each year forever. The required rate of return on the stock is 24.79%. What is today's price of the stock? Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box.

Apple, Inc. just paid a dividend of $2.28 a share. Dividends are expected to grow at...

Apple, Inc. just paid a dividend of $2.28 a share. Dividends are expected to grow at a rate of 12% per year for the next three years and then at a rate of 3.5% thereafter. If your required rate of return is 9%, what is the most that you should be willing to pay for a share of Apple stock today?

4. Airlines Inc. just paid a $3.50 dividend, and it is expected to grow at 45%...

4. Airlines Inc. just paid a $3.50 dividend, and it is expected to grow at 45% for the next 3 years. After 3 years the dividend is expected to grow at the rate of 4% indefinitely. If the required return is 9.8%, what is the stock's value today? Need it in spreadsheet form

ABC,. Inc just paid a dividend of $11.24. The dividends are expected to grow by 24%...

ABC,. Inc just paid a dividend of $11.24. The dividends are expected to grow by 24% in Years 1-3. After that, the dividends are expected to grow by 3% each year. If the required rate of return is 20%, what is today's price of the stock?

Question