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Drupady [299]
3 years ago
10

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 70% per year - during Years 4 and 5. After Year 5, the company should grow at a constant rate of 6% per year. If the required return on the stock is 13%, what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)
Business
1 answer:
raketka [301]3 years ago
4 0

Answer:

The current value of stock is $20.40

Explanation:

D3 = $0.75

The Growth rate for Year 4 & Year 5 is 70%. The experience after was constant growth rate (g) of 6%

D4 = $0.75 * 1.70 = $1.28

D5 = $1.28 * 1.70 = $2.18

D6 = $2.18 * 1.06 = $2.31

To get the Value of stock, r = 16%

P5 = D6 / (r - g)

P5 = $2.31 / (0.13 - 0.06)

P5 = $2.31 / 0.07

P5 = $33

P0 = $0.75/1.13^3 + $1.28/1.13^4 + $2.18/1.13^5 + $33/1.13^5

P0 = $0.75/1.4429 + $1.28/1.6305 + $2.18/1.8424 + $33/1.8424

P0 = $0.5198 + $0.7850 + $1.1832 + $17.9114

P0 = $20.3994

P0 = $20.40

So, current value of stock is $20.40

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You plan on purchasing the stock of Red Cigars Inc. and you expect it to pay a dividend of​ $3.15 in 1​ year, $3.55 in 2​ years,
Musya8 [376]

Answer:

Price of stock = $78.143

Explanation:

According to the dividend valuation model , the current price of a stock is the present value of the expected future dividends discounted at the required rate of return.  

So we will discount the steams of dividend using the required rate of 11.0% as follows

Price of stock =3.15 × 1.11^(-1)  +3.55× 1.11^(-2) +4.05 1.11^(3)  +95× 1.11^(-3)

=78.143

Price of stock = $78.143

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3 years ago
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Answer:

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Explanation:

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The Fed has decided to expand the money supply, leading to lower interest rates. As a partner in a tech start-up, you react to t
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Answer:

A, B and D

Explanation:

Expanding the money supply is an exercise of expansionary monetary policy.

This decision will first allow our tech startup to acquire cheaper loans and expand our operations, this expansion in operations will result in new employment opportunities and hence as a result, unemployment will be reduced assuming this is a general trend in the economy.

This decision also directly reflects an increased investment and hence the GDP on the whole and the investment part of GDP would both increase,

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This change in macro economy will increase aggregate demand due to expansionary effects. Increase in imports is not conclusive as it may or may not happen depending upon the demand state.

Hope this helps.

8 0
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The dividend growth model: I. assumes that dividends increase at a constant rate forever. II. can be used to compute a stock pri
Dimas [21]

Answer:

I,  II,  III,  &  IV

Explanation:

The dividend growth model is just one of many analytic strategies devised by financial experts and investors to navigate thousands of available investment options and select the individual equities that are the best fit for the specific portfolio strategy.

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