Question
In: Finance
ABC Corp. just paid a dividend of $1.40 per share. The dividends are expected to grow...
ABC Corp. just paid a dividend of $1.40 per share. The dividends are expected to grow at 25 percent for the next 7 years and then level off to a 7 percent growth rate indefinitely. If the required return is 15 percent, what is the price of the stock today?
Solutions
Expert Solution
Price is calculated as follows:
| Year | CF | Discount Factor | Discounted CF | ||
| 1 | $ 1.75 | 1/(1+0.15)^1= | 0.869565217 | 0.869565217391304*1.75= | 1.52 |
| 2 | $ 2.19 | 1/(1+0.15)^2= | 0.756143667 | 0.756143667296787*2.1875= | 1.65 |
| 3 | $ 2.73 | 1/(1+0.15)^3= | 0.657516232 | 0.657516232431988*2.734375= | 1.80 |
| 4 | $ 3.42 | 1/(1+0.15)^4= | 0.571753246 | 0.571753245593033*3.41796875= | 1.95 |
| 5 | $ 4.27 | 1/(1+0.15)^5= | 0.497176735 | 0.49717673529829*4.2724609375= | 2.12 |
| 6 | $ 5.34 | 1/(1+0.15)^6= | 0.432327596 | 0.432327595911556*5.340576171875= | 2.31 |
| 7 | $ 6.68 | 1/(1+0.15)^7= | 0.37593704 | 0.375937039923093*6.67572021484375= | 2.51 |
| 7 | $89.29 | 1/(1+0.15)^7= | 0.37593704 | 0.375937039923093*89.2877578735352= | 33.57 |
| Price= Sum of all Discounted CF | 47.44 |
So the price is $47.44
jeff jeffy answered 1 year agoRelated Solutions
ABC, Inc. just paid a dividend of $2.50 per share. The dividends are expected to grow...
ABC, Inc. just paid a dividend of $2.50 per share. The dividends
are expected to grow for the next 3 years at 8% per year, then grow
at 3% per year forever. The required rate of return for ABC stock
is 12% per year. a) What should the market price of ABC stock be?
b) What should the ex-dividend stock price of ABC be in year 2? c)
If you purchased the share of ABC at time 2, at the...
A7X Corp. just paid a dividend of $1.35 per share. The dividends are expected to grow...
A7X Corp. just paid a dividend of $1.35 per share. The
dividends are expected to grow at 40 percent for the next 9 years
and then level off to a growth rate of 5 percent indefinitely.
If the required return is 12 percent, what is the price of the
stock today?
A7X Corp. just paid a dividend of $1.30 per share. The dividends are expected to grow...
A7X Corp. just paid a dividend of $1.30 per share. The
dividends are expected to grow at 35 percent for the next 8 years
and then level off to a growth rate of 6 percent indefinitely.
If the required return is 14 percent, what is the price of the
stock today?
Multiple Choice
$92.39
$2.93
$90.58
$88.77
$66.62
A7X Corp. just paid a dividend of $1.45 per share. The dividends are expected to grow...
A7X Corp. just paid a dividend of $1.45 per share. The dividends
are expected to grow at 25 percent for the next 6 years and then
level off to a growth rate of 8 percent indefinitely.
If the required return is 15 percent, what is the price of the
stock today?
A7X Corp. just paid a dividend of $1.35 per share. The dividends are expected to grow...
A7X Corp. just paid a dividend of $1.35 per share. The dividends
are expected to grow at 30 percent for the next 7 years and then
level off to a growth rate of 8 percent indefinitely. If the
required return is 14 percent, what is the price of the stock
today?
$77.47
$75.92
$60.94
$79.02
$.14
A7X Corp. just paid a dividend of $1.45 per share. The dividends are expected to grow...
A7X Corp. just paid a dividend of $1.45 per share. The
dividends are expected to grow at 30 percent for the next 8 years
and then level off to a growth rate of 8 percent indefinitely.
If the required return is 12 percent, what is the price of the
stock today?
$156.07
$128.98
$149.95
$153.01
$2.05
ABC stock just paid dividend $0.55 per share, and future dividends are expected to grow at...
ABC stock just paid dividend $0.55 per share, and future
dividends are expected to grow at a constant rate of 1.69% every
year. The required return for the ABC stock is 20.99%.
What is the expected annual dividend amount (per share) ABC
stockholders expect to receive next year?
ABZ Corp. just paid a dividend of $1.00 per share. The dividend is expected to grow...
ABZ Corp. just paid a dividend of $1.00 per share. The dividend
is expected to grow 6% per year in perpetuity. The
stock's beta is 0.85. The risk-free rate is 3%, and the
market risk premium is 7%. The current stock price is $37 per
share. Assume that one year from now the stock will be
correctly valued.
What are the dividend yield, capital gain yield and expected
return for the coming year?
Draw the Security Market Line and plot the stock on...
1. Membo just paid a dividend of $2.2 per share. Dividends are expected to grow at...
1. Membo just paid a dividend of $2.2 per share. Dividends are
expected to grow at 7%, 6%, and 4% for the next three years
respectively. After that the dividends are expected to grow at a
constant rate of 3% indefinitely. Stockholders require a return of
8 percent to invest in Membo’s common stock. Compute the value of
Membo’s common stock today.
Hank’s Barbecue just paid a dividend of $2.05 per share. The dividends are expected to grow...
Hank’s Barbecue just paid a dividend of $2.05 per share. The
dividends are expected to grow at a 14.5 percent rate for the next
five years and then level off to a 9.5 percent growth rate
indefinitely. If the required return is 12.5 percent, what is the
value of the stock today? What if the required return is 17.5
percent?
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- function X=extractDWT(x_train,startS,endS,wStep,wRange) % x_train = input signal % startS = from second % endS = end...
- Do you agree that Social Loafing is similar to Theory X. Give an example to support...
- Computing Cost of Goods Sold and Ending Inventory. Bartov Corporation reports the following beginning inventory and...
- SQL FORMAT (11-13 are completed and correct) -- 11. what are the names of all students...
- You have been hired as a capital budgeting analyst by Advent Sports, a sporting goods firm...
- DESCRIBE WHAT HAPPENS WHEN WE BECOME CONSCIOUS OF SOMETHING. WHAT HAS TO HAPPEN FOR CONSCIOUS AWARENESS...
- 3) You are rolling a 12 sided die 8 times. a) What is the size for...
ADVERTISEMENT