1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Mariana [72]
3 years ago
8

Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However

, investors expect Simpkins to begin paying dividends, with the first dividend of $0.75 coming 3 years from today. The dividend should grow rapidly - at a rate of 65% per year - during Years 4 and 5. After Year 5, the company should grow at a constant rate of 7% per year. If the required return on the stock is 14%, what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)? Do not round intermediate calculations. Round your answer to the nearest cent.
Business
2 answers:
viktelen [127]3 years ago
8 0

Answer:

Value of the stock today=18.51

Explanation:

Price of the stock today = \frac{D3}{(1+ke)^3}+\frac{D4}{(1+ke)^4}+\frac{D5}{(1+ke)^5}+\frac{D6}{(1+ke)^6}+\frac{P6}{(1+ke)^6}.

where and P6= \frac{D7}{ke-g}

Estimate of the stock's current price = \frac{0.75}{(1+0.14)^3}+\frac{0.75(1.65)}{(1+0.14)^4}+\frac{0.75(1.65)^2}{(1+0.14)^5}+\frac{0.75(1.65)^2(1.07)}{(1+0.14)^6}+\frac{0.75(1.65)^2(1.07)^2}{(0.14-0.07)(1.14)^6} =  18.51

raketka [301]3 years ago
4 0

Answer:

The answer is $18.52

Explanation:

The dividend growth model is used to determine if a company's stock is undervalued or overvalued given the expected growth rate of the  company. This valuation model calculates the value of the stock assuming the dividend growth is stable in perpetuity or at different rate during a specified period. The multi stage dividend growth model is useful in this case because the dividend growth rate is not uniform across all periods. The computation is done sequentially and in stages.

The first stage entails computing the expected dividend values, where the the growth rate is 65% in year 4 and 5 then 7% thereafter.

The second stage involves computing the present values of the values in the first stage using the required rate of return given as 14%

In the third stage, the dividend in perpetuity is computed so as to calculate the anticipated price of the stock in future, given the stable dividend growth. Lastly, the present value of the stock is computed by adding up all the present values of the projected dividend values calculated.

Please see the attached document for these calculations in a tabular format.

Present value of stock = 0.506 + 0.733+1.0605+16.212 = 18.516

   

Download pdf
You might be interested in
Proponents of rational expectations argued that the sacrifice ratio:______.a. could be high because people might adjust their ex
Arte-miy333 [17]

Answer:

b. could be low because people might adjust their expectations quickly if they found anti-inflation policy credible

Explanation:

In the given situation, it is mentioned that the rational expectations proponets said that the sacrified ratio would be lesser as the people wants to adjust their expectations in a fastest way in the case when they found that the anti-inflation policy is credible

Therefore as per the given situation, the option b is correct

3 0
3 years ago
a small clothing firm currently produces 50,000 shirts and blouses per month. the costs of its factory, raw materials, and labor
Mrac [35]

A small clothing firm currently produces 50,000 shirts and blouses per month. the costs of its factory, raw materials, and labor are $500,000 per month. if the company is to increase production by 5,000 and that requires additional labor and raw material expense of $100,000, what is the best estimate of costs of the increased production is $100,000.

Most people think you'll make a kajillion dollars and be well on your way to overnight stardom. But the reality is that the profit margins on clothing are notoriously low. According to industry analysts, you're looking at 4-13% profit margins. That means for every $100 you invest, you get $104-$113 back.

Production is the process of making or manufacturing goods and products from raw materials or components. In other words, production takes inputs and uses them to create an output that is fit for the consumption of a good or product that has value to an end-user or customer.

Learn more about Production  here

brainly.com/question/16755022

#SPJ4

8 0
2 years ago
Charlene has a monthly salary of $3,410. With her present budget, Charlene has a net income that is 7% of her monthly salary. Ch
Kipish [7]

Answer:

a. $113.70

Explanation:

The computation of the new net income is shown below:

= Monthly salary × net income percentage - reduced amount of net income per month

= $3,410 × 7% - $125

= $113.70

Hence, the corrected net income is $113.70

Therefore the correct option is a. $113.70

All other options are wrong hence ignored them

7 0
4 years ago
What is delegation?
8090 [49]
D. Giving tasks to other people
6 0
3 years ago
Which of the following statements regarding Government National Mortgage Association (GNMA) securities are true EXCEPT:________.
m_a_m_a [10]

Answer: B) GNMAs are considered to be the riskiest of the agency issues

Explanation:

The Government National Mortgage Association (GNMA) or <em>Ginnie Mae</em> as they are popularly known, are a Federal agency that guarantee the payment of interest and principal on securities by lenders that are approved by the Agency.

As a result, these securities are backed, like Treasury Bills, by the full faith and credit of the United States Government which means that they are the safest of Agency issues.

4 0
3 years ago
Other questions:
  • What are the central concerns of economics?
    15·1 answer
  • Which of the following is not a category of electrical burns?
    5·2 answers
  • To help with hiring decisions during peak seasons and holidays, Touching Cards uses time-series forecasts, like sales from last
    5·1 answer
  • Restaurant A uses 60 bags of potatoes each month. The potatoes are purchased from a supplier for a price of $80 per bag and an o
    8·1 answer
  • City gas is a natural monopoly that supplies natural gas to a particular city. its cost and demand information are given below.
    14·1 answer
  • Nelson Whiting (single) purchased a home in Denver, Colorado, for $300,000. He moved into the home on July 1 of year 1. He lived
    11·1 answer
  • At the beginning of the year, Tektron Company had total assets of $600,000 and total liabilities of $300,000. If the total asset
    13·1 answer
  • Organizational commitment refers to all of the following except _____ .
    7·1 answer
  • 5x - 3y = 8 <br>9 + 7y - 126​
    8·1 answer
  • If the quantity of real domestic output demanded increased by $1,000 at each price level, the new equilibrium price level and qu
    7·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!