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?

Expert Solution

	Required rate=	18.00%
Year	Previous year dividend	Dividend growth rate	Dividend current year	Horizon value	Total Value	Discount factor	Discounted value
1	0	0.00%	0		0	1.18	0
2	0	0.00%	0		0	1.3924	0
3	0	0.00%	0		0	1.643032	0
4	0	0.00%	0		0	1.93877776	0.00
5	0	0.00%	0		0	2.287757757	0.00
6	0	0.00%	0		0	2.699554153	0
7	0	0.00%	0		0	3.185473901	0
8	0	0.00%	4.35	59.813	64.163	3.758859203	17.06981
	Long term growth rate (given)=	10.00%			Value of Stock =	Sum of discounted value =	17.07

Where
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 8 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor

jeff jeffy answered 1 year ago

Mariota Corp. just paid a dividend of $4.35 per share on its stock.

2. MC algo 8-40 Nonconstant DividendsMariota Corp. just paid a dividend of $4.35 per share on its stock. The dividend growth rate is expected to be 3.15 forever and investors require a return of 13.7 percent on this stock. What will the stock price be in 7 years?Multiple Choice$46.48$51.23$21.51$52.84$40.695. MC algo 8-29 Valuing StockBraxton's Cleaning Company stock is selling for $31.75 per share based on a required return of 9.9 percent. What is the the next annual dividend if the...

Dunder-Mifflin has a beta of 1.8 and just paid a dividend of $0.85 that is expected...

Dunder-Mifflin has a beta of 1.8 and just paid a dividend of $0.85 that is expected to grow at 3.5%. If the risk-free rate is 3% and the expected market return is 9%, what should be the price of the stock? A. $17.35 B. $8.54 C. $8.25 D. $17.95

The In-Tech Co. just paid a dividend of $1 per share. Analysts expect its dividend to...

The In-Tech Co. just paid a dividend of $1 per share. Analysts expect its dividend to grow at 25% per year for the next three years and then at a constant growth rate per year thereafter. The estimate of the constant growth rate of dividend is based on the long term return of equity 25% and payout ratio 80%. If the required rate of return on the stock is 18%, what is the current value of the stock? Clearly show...

The In-Tech Co. just paid a dividend of $1.5 per share. Analysts expect its dividend to...

The In-Tech Co. just paid a dividend of $1.5 per share. Analysts expect its dividend to grow at 20 percent per year for the next three years and then 3 percent per year thereafter. If the required rate of return on the stock is 5.5 percent. What is the current value of the stock ? 96.80 94.15 none of the above 98.30 92.16

Digital Plc just paid a dividend of $3 per share. Analysts expect its dividend to grow...

Digital Plc just paid a dividend of $3 per share. Analysts expect its dividend to grow at 12% per year for the next three years and then 6% per year, indefinitely thereafter. If the required rate of return on the stock is 10%, what is the current value of the stock? a) 93 b) 87 c) 77 d) 69 e) 98

A company just paid a dividend of $1.53 per share and you expect the dividend to...

A company just paid a dividend of $1.53 per share and you expect the dividend to grow at a constant rate of 5.6% per year indefinitely into the future. If the required rate of return is 13.4% per year, what would be a fair price for this stock today? (Answer to the nearest penny per share.)

A company just paid a dividend of $0.79 per share and you expect the dividend to...

A company just paid a dividend of $0.79 per share and you expect the dividend to grow at a constant rate of 5.2% per year indefinitely into the future. If the required rate of return is 12.4% per year, what would be a fair price for this stock today? (Answer to the nearest penny per share.) A 6.4% coupon bearing bond pays interest semi-annually and has a maturity of 6 years. If the current price of the bond is $1,023.87,...

Emmenthaler S.A. ADRS pay a dividend of $2.50 per share. All things equal, one would expect...

Emmenthaler S.A. ADRS pay a dividend of $2.50 per share. All things equal, one would expect the price to drop by approximately $2.50 on the A. ex-dividend date B. date of record C. purchase date D. payment date

Stewart Industries expects to pay a $3.00 per share dividend on its common stock at the...

Stewart Industries expects to pay a $3.00 per share dividend on its common stock at the end of the year. The dividend is expected to grow 25% a year until t=3 after which time the dividend is expected to grow at a constant rate of 5% a year. The stock’s beta is 1.2, the risk free rate of interest (Rf) is 6% and the rate of return on the market (Rm) is 11%. Use the CAPM equation to find the...

A stock expects to pay a dividend of $3.72 per share next year. The dividend is...

A stock expects to pay a dividend of $3.72 per share next year. The dividend is expected to grow at 25 percent per year for three years followed by a constant dividend growth rate of 4 percent per year in perpetuity. What is the expected stock price per share 5 years from today, if the required return is 12 percent?

Question