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
koban [17]
3 years ago
5

Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings, hence it does not pay dividends. H

owever, investors expect Microtech to begin paying dividends, beginning with a dividend of $2.00 coming 3 years from today. The dividend should grow rapidly - at a rate of 24% per year - during Years 4 and 5, but after Year 5 growth should be a constant 7% per year. If the required return on Microtech is 14%, what is the value of the stock today? Round your answer to two decimal places.
Business
2 answers:
UkoKoshka [18]3 years ago
8 0

Answer:

Value of one share today is $ 28.80                

Explanation:

D1 and D2 = 0

D3 = 2 coming at three years

Dividend grows at 24 % per year during Year 5 & Year 6.

D4 = 2 x 1.24 = 2.48

D5 = 2.48 x 1.24 =  3.072

D6 = 3.072 x 1.07 = 3.28704

Terminal value at the end of Year 5 = D6 / (Cost of equity - Costant growth rate)

Terminal value at the end of Year 5 = 3.28704 / (14 % - 7%) = 46.96

Value of Stock today will be = Present value of all dividends + Present value of terminal value at year 5

Present value of D1 & D2 = 0

Present value of D3 = 2 / (1.14)^3 = 1.35

Present value of D4 = 2 / (1.14)^4 = 1.47

Present value of D5 = 2 / (1.14)^5 = 1.60

Present value of all dividends = 4.41

Present value of terminal value = 46.96 / (1.14)^5 = 24.39

Value of one Share today =   Present value of all dividends + Present value of terminal value

Value of one Share today  = 4.41 + 24.39 = 28.80

12345 [234]3 years ago
5 0

Answer:

Di = dividend in year i

D0 = D1 = D2 = 0

D3 = 2

D4 = D3 * (1+24%) = 2.48

D5 = D4 * (1+24%) = 3.0752

D6 = D5 * (1+7%) = 3.290464

require return r = 14%

g = 7% in the long run

So stock price in year 5 = D6/(r-g) = 3.290464/(14%-7%) = 47.0066

Current price = Present value of dividends and stock

= D1/(1+r) + D2/(1+r)^2 + D3/(1+r)^3 + D4/(1+r)^4 + D5/(1+r)^5 + Price in year 5/(1+r)^5

= 0 + 0 + 2/(1+14%)^3 + 2.48/(1+14%)^4 + 3.0752/(1+14%)^5 + 47.0066/(1+14%)^5

= 28.829219

= 28.83 (rounded to 2 decimals)

Explanation:

You might be interested in
What does the Mutual Reward Theory state?
alekssr [168]
Basically saying when a relationship between 2 people is boosted, there is a balance between them. The more equal the rewards, the more permanent the relationship.
8 0
2 years ago
How much do voice actors get paid per episode?
katovenus [111]
It really depends as to what they do and how long they do it for I would say it ranges person to person
4 0
3 years ago
When a shortage exists in a competitive market, the price provides incentives for:______.
NISA [10]

When a shortage exists in a competitive market, the price provides incentives for Buyers to decrease the quantity of a good or service purchased to the market.

More about shortage:

In terms of economics, a shortage occurs when there is a discrepancy between the amount supplied and the quantity sought at the going rate.

Three factors primarily contribute to shortages: rising demand, falling supply, and government action. The term "scarcity" ought not to be confused with "shortage" as it is used in economics.

Command economies experience higher shortages. Here, the government refuses to let the forces of supply and demand determine the price of a good or service on the open market.

Learn more about shortage here:

brainly.com/question/14592344

#SPJ4

7 0
1 year ago
Phil is a healthy college student. When he wakes up in the morning, he can't wait to eat breakfast. While he is asleep and befor
anastassius [24]

Answer:

Glucagon

Explanation:

Glucagon is a hormone produced by the pancreas that helps control the glucose levels. This hormone avoids the glucose levels to drop to a dangerous level by making the stored glycogen to turn into glucose in the liver. It also helps glucose to go to the bloodstream instead of being used by the liver to maintain stable levels.

7 0
3 years ago
During the previous year, Yvo Corp. installed a production assembly line to manufacture furniture. In the current year, Yvo purc
Neporo4naja [7]

Answer:

A. $147,000

Explanation:

All cost incurrend in the installation of the assembly line, and their put to use to meet the company demand will be capitalized

the machine cost

the labor to install the machine

the parts added to the assembly line

rearrange of the assembly line

All those cost were incurred to leave the assembly line ready to use, are associate with the long-term asset so it can be capitalized through it.

75,000 + 14,000 + 40,000 + 18,000 = 147,000

4 0
3 years ago
Other questions:
  • ABC Ltd. uses EOQ logic to determine the order quantity for its various components and is planning its orders. The Annual consum
    10·1 answer
  • He table below shows the number of male and female students enrolled in nursing at a particular university for a recent semester
    11·1 answer
  • Suppose that on Valentine's Day, the demand for both roses and greeting cards increases by the same percentage amount. However,
    12·1 answer
  • Describe two types of organizational documents that can help you organize a job search. What is the purpose of each document? ne
    6·1 answer
  • You want to provide spending money for your 4 year old during their college years. You can afford to deposit $600/year for the n
    9·1 answer
  • If you get a department store or gas card, what should you check to make sure it will help your credit score?
    6·2 answers
  • How many americans are victims of identity theft each year? about 10,000. about 100,000. about 1 million. about 10 million. abou
    10·1 answer
  • We all have our own reasons for investing. For some it may be to provide for a child’s education, while for others it may acquir
    9·2 answers
  • Which cell organelle is most similar in function to an organism’s nervous<br> system? true or false
    10·1 answer
  • " The capable manpower is the key factor of any vocation ". Justify this statament with suitable examples .
    10·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!