Chicago Ice Cream Co. just paid a dividend of $6.00 per share. The company will increase...

Chicago Ice Cream Co. just paid a dividend of $6.00 per share. The company will increase its dividend by 20% next year, and then will reduce this dividend growth rate by 5% a year until it reaches the industry average of 5%, after which the company will keep a constant growth rate forever. The required rate of return on Chicago stock is 10%.

a. What is the current price per share for Chicago?

b. What is the expected price per share for Chicago next year?

c. What is the expected price per share for Chicago five years from today?

Expert Solution

To calculate the price next year, we need to assume that as the present day and take dividends values from 2nd year onwards

SO

D4 = 9.5634

D5 = 9.5634 * 1.05 = 10.04

Since growth rate after year 5 is constant

Price = 10.04 * (1+g)/(r-g)

g = 5%

r = 10%

Price = 10.04 *1.05 / (0.1 - 0.05) = 218.4

LET ME KNOW IF YOU HAVE ANY DOUBTS

jeff jeffy answered 1 year ago

Storico Co. just paid a dividend of $1.55 per share. The company will increase its dividend...

Storico Co. just paid a dividend of $1.55 per share. The company will increase its dividend by 24 percent next year and then reduce its dividend growth rate by 6 percentage points per year until it reaches the industry average of 6 percent dividend growth, after which the company will keep a constant growth rate forever. If the stock price is $27.28, what required return must investors be demanding on the company's stock? (Hint: Set up the valuation formula with...

Yoland Co. just paid a dividend of $2.00 per share. The company will increase its dividend...

Yoland Co. just paid a dividend of $2.00 per share. The company will increase its dividend by 20 percent next year and then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the stock price is $53.04, what required return must investors be demanding on the company's stock? (Hint: Set up the valuation formula with...

Storico Co. just paid a dividend of $1.75 per share. The company will increase its dividend...

Storico Co. just paid a dividend of $1.75 per share. The company will increase its dividend by 24 percent next year and then reduce its dividend growth rate by 6 percentage points per year until it reaches the industry average of 6 percent dividend growth, after which the company will keep a constant growth rate forever. If the stock price is $44.96, what required return must investors be demanding on the company's stock? (Hint: Set up the valuation formula with...

Storico Co. just paid a dividend of $1.95 per share. The company will increase its dividend...

Storico Co. just paid a dividend of $1.95 per share. The company will increase its dividend by 24 percent next year and then reduce its dividend growth rate by 6 percentage points per year until it reaches the industry average of 6 percent dividend growth, after which the company will keep a constant growth rate forever. If the stock price is $40.95, what required return must investors be demanding on the company's stock? (Hint: Set up the valuation formula with...

Storico Co. just paid a dividend of $2.10 per share. The company will increase its dividend...

Storico Co. just paid a dividend of $2.10 per share. The company will increase its dividend by 20 percent next year and then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the stock price is $41.71, what required return must investors be demanding on the company's stock? (Hint: Set up the valuation formula with...

Storico Co. just paid a dividend of $1.90 per share. The company will increase its dividend...

Storico Co. just paid a dividend of $1.90 per share. The company will increase its dividend by 20 percent next year and then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on the company's stock is 15 percent, what will a share of stock sell for today? (Do not round intermediate...

Warf Co. just paid a dividend of $4.00 per share. The company will increase its dividend...

Warf Co. just paid a dividend of $4.00 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent, after which the company will keep a constant growth rate, forever. If the required return on Warf stock is 13 percent. Required: a) what will a share of stock sell for today? b) What conditions must...

1. Your company just paid a dividend of $4.0 per share. The company will increase its...

1. Your company just paid a dividend of $4.0 per share. The company will increase its dividend by 5% next year and will then increase its dividend growth rate by 2% points per year ( from 5% to 7% to 9% to 11%) until it reaches the industry average of 11% dividend growth, after which the company will keep a constant growth rate forever. The required return on your company’s stock is 13.08%. What will a share of stock sell...

The Timberlake Orchard Co just paid a dividend of $7 per share. The dividend is expected...

The Timberlake Orchard Co just paid a dividend of $7 per share. The dividend is expected to grow at a rate of 5% for the next three years. In year four and five it will grow at a rate of 4% per year. The growth rate of dividend is expected to be constant 6 percent indefinitely from year six. The required rate of return is 13 percent. What is the current share price? (Show all your computations) Rubrics: 1. Correct...

MMM Co. just paid a dividend of $1.10 per share. The dividend is expected to grow...

MMM Co. just paid a dividend of $1.10 per share. The dividend is expected to grow by 30% next year, 90% in both Years 2 & 3, 20% in Year 4, and then grow at a constant rate of 4% thereafter. The required rate of return is 5%. Compute the selling price of the stock.

Question