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dezoksy [38]
2 years ago
14

A company just paid a $2 dividend per share. The dividend growth rate is expected to be constant at 10% for 2 years, after which

dividends are expected to grow at a rate of 3% forever. If the company’s required return (rs) is 11%, what is its current stock price?
Business
1 answer:
Olin [163]2 years ago
5 0

Answer:

Do =  $2.00

D1= Do(1+g)1 =  $2(1+0.1)1 = $2.20

D2= Do(1+g)2 = $2(1+0.1)2 = $2.42

PHASE 1

V1 = D1/1+ke + D2/(1+ke)2  

V1 = 2.20/(1+0.11) + 2.42/(1+0.11)2  

V1 = $1.9820 + $1.9641

V1 = $3.9461

PHASE 2

V2 = DN(1+g)/ (Ke-g )(1+k e)n                                                                                                                                                                                                                                        V2 = $2.42(1+0.03)/(0.11-0.03)(1+0.11)2      

V2 = $2.4926/$0.0649

V2 = $38.4068

The current stock price is calculated as follows:

Po = V1 + V2

Po = $3.9461 + $38.4068

Po = $42.35

Explanation: This question relates to valuation of shares with 2-phase growth model.  The value of shares in the first phase will be determined by discounting the dividend for the 2 years by cost of equity. The dividends for year 1 and year 2 were obtained by subjecting the current dividend paid (Do) to growth rate.  

Moreso, the value of shares for the second phase was calculated by considering the last dividend paid(D2) and then subject it to the new growth rate. The adjusted dividend was then capitalized at the appropriate discount rate of the company.

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Scrat [10]

Answer:

Brief summary of the case:

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3 0
3 years ago
BP ignored some safety regulations in order save $1 Million per day on the Horizon Deep Water Drilling Platform. How much did th
aleksklad [387]

Ignoring some safety regulations in order save $1 Million per day. The amount that  those violations end up costing the company is $100 Billion.

<h3>What is safety regulation?</h3>

Safety regulation can be defined as a set of rules and regulation that an employees are mandated to follow so as to prevent work hazard.

Based on the given scenario ignoring the safety regulation so as to save $1 million per day  will cost the company $100 Billion.

Which is why companies made it compulsory for employees to follow the saftey standard set so as to ensures that employees work in a safe and conducive environment .

Inconclusion the amount that  those violations end up costing the company is $100 Billion.

Learn more about Safety regulation here:brainly.com/question/8430576

4 0
1 year ago
McKay Company sells lamps and they have decided that they would make the price of their lamps 30% more than what it cost the com
julsineya [31]
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6 0
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Read 2 more answers
"Net income for the period was $200,000. The retained earnings account had a beginning balance of $25,000. If the company paid d
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Answer:

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The net income would increase the balance of the retained earnings hence it is added to it.

The Dividend paid would be a cash outflow which would reduce the balance of the retained earnings, hence it is deducted from it.

So applying this to the question, we have

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Retained earning balance at the end would be = $205,000

3 0
3 years ago
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slavikrds [6]

Answer:

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Explanation:

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Using this formula

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