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lora16 [44]
3 years ago
10

Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2, a dividend in year 2 of $3, and a dividend in year 3

of $4. After year 3, dividends are expected to grow at the rate of 7% per year. An appropriate required return for the stock is 12%. Using the multistage DDM, the stock should be worth __________ today.
Business
1 answer:
Bezzdna [24]3 years ago
7 0

Answer:

$67.95

Explanation:

Dividends per year;

D1 =$2

D2 = $3

D3 = $4

D4 = D3(1+g)

g= growth rate = 7% or 0.07 as a decimal

D4 = 4*(1.07) = $4.28

Next, find PV of each dividend at 12% rate of return and sum them up;

Price= 2/ (1.12) + 3/(1.12^2) +4/ (1.12^3) + \frac{4.28/(0.12-0.07)}{1.12^{3} }

=1.7857 + 2.3916 + 2.8471 + 60.9284

= 67.9528

Therefore, the stock should be worth $67.95 today

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<h3 /><h3>Total cost</h3>

Using this formula

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3 0
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EB4.
valkas [14]

Answer:

1/3 or 33.33%

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Contribution margin ratio=Contribution margin per unit /sales price per unit

In this question

Contribution margin per unit=$30

Sale price per unit=$90

Contribution margin ratio=30/90

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