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Igoryamba
4 years ago
10

The Shore Hotel just paid a dividend of $2 per share. The company will increase its dividend by 6 percent next year and will the

n reduce its dividend growth rate by 2 percentage points per year until it reaches the industry average of 2 percent dividend growth, after which the company will keep a constant growth rate forever. What is the price of this stock today given a required return of 12 percent
Business
1 answer:
SVETLANKA909090 [29]4 years ago
8 0

Answer:

The price of the stock today is $21.58

Explanation:

The dividend is growing by three different growth rates. Thus, the three stage growth model of DDM will be used to calculate the price of the share today. Under DDM approach, we discount the expected dividends by the required rate of return to estimate the fair value of the stock today. The terminal value is calculated when the dividend growth becomes constant forever. To calculate the price of the stock today, we use next period's dividend D1.

The price per share = D1 / (1+r)  +  D2 / (1+r)^2 + ... + [(Dn * (1+g) / r - g) / (1+r)^n]

Price per share = 2 * (1+0.06) / (1+0.12)  +  2 * (1+0.06) * (1+0.04) / (1+0.12)^2  +  [(2 * (1+0.06) * (1+0.04) * (1+0.02) / (0.12 - 0.02)  /  (1+0.12)^2]

Price of stock today = $21.578 rounded off to $21.58

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Answer:

Beautiful Clocks

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Explanation:

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7 0
3 years ago
When a person purchases stock in a company, he is in reality loaning money to the company.?
tia_tia [17]
No , he is not.

When a person purchases stock in a company, he became parts of the owners of the company.

The company does not we him anything. If company is making profit, he get a dividend payment. If don't, it's his risk for buying the stocks

hope this helps
8 0
4 years ago
Read 2 more answers
Morgana Company identifies three activities in its manufacturing process: machine setups, machining, and inspections. Estimated
Ghella [55]

Answer and Explanation:

The computation of the overhead rate for each activity is as follows;

Overhead rate is

= Respective overhead cost ÷ Respective activity

For Machine setups

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5 0
3 years ago
Suppose that a computer software company controls the operating system market. Although the government knows that the price is h
tangare [24]

Answer:

a. Do nothing at all.

Explanation:

Since, the government knows that the price is higher than it would be in the presence of competition, it believes that such profits are crucial to incentivizing innovation in the high-tech industry, a policy goal of the government shall be to leave it alone.

The government has four potential policy paths to pursue when faced with a monopoly or powerful oligopoly

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4 years ago
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4 years ago
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