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AlexFokin [52]
3 years ago
13

Dino Co. is a new education consulting firm that just paid its annual dividend of $1.00 yesterday. Analyst believe that due to a

special one-time boost in revenue, the following year’s dividend (t=1) will be $3.50. Dividends will decline at a 30% rate for 2 years, after which point they will grow at a steady rate of 3% forever. Similar firms in the industry have a 20% cost of capital associated with them.
Required:
1) What is the dollar amount of the dividend at the end of year 3 (t=3), round to the nearest penny?
2) What is the per-share value of the stock, round to the nearest penny?
Using the information as in parts 1) and 2), and the calculated share price from part 2:
3) You are offered the chance to buy shares in Dino Co. for $11.75 per share. Should you purchase shares? Would you answer change if you felt Dino Co. would have a 10% cost of capital? Why/why not?
Business
1 answer:
tensa zangetsu [6.8K]3 years ago
4 0

Answer:

Explanation:

1)

dividend at (t = 1) given = 3.5

dividend at (t = 2) = 3.5 *(1 - 0.3) = 2.45

dividend at (t = 3) = 2.45*(1 - 0.3) = $1.715

so dollar amount of dividend at (t = 3) = $1.715

2)

value of the stock = present value of future dividends discounted at cost of capital(20%)

continuous value = dividend at (t = 3)[1+ growth] / K - g

= 1.715(1+3%) / 0.2 - 0.03

= 10.39

share price = 3.5 / (1.2) + 2.45 / (1.2)^2 + 1.715 / (1.2)^3 + 10.39 / (1.2)^3

= $11.62

3)

worth of the share as per calculation is $11.62 only. $11.75 is over priced so it is not recommended to buy

in case of 10% cost of capital

continuous value = dividend at (t = 3)[1+ growth] / K - g

= 1.715(1+3%) / 0.1 - 0.03

= 25.235

share price = 3.5 / (1.1) + 2.45 / (1.1)^2 + 1.715 / (1.1)^3 + 25.235 / (1.1)^3

= $25.45

since offer price of $11.75 is less than calculated value, we can buy the share.

You might be interested in
A. Suppose there is a surge in consumer confidence, creating an increase in aggregate demand in the economy. The Federal Reserve
Mrac [35]

Answer:

See below.

Explanation:

For a, first we calculate the credit multiplier of the economy,

Credit multiplier = 1 / reserve ratio

Credit multiplier = 1 / 0.25 = 4

This means that any change in money supply will be 4 times as much in the economy, hence to induce a change of $120 billion, the Fed will decrease the money supply by 120/4 = $30 billion. This will increase the interest rates just enough to stabilize aggregate demand.

For b, we again start by calculating the credit multiplier.

Credit multiplier = 1/0.10 = 10

Since the Fed want to stimulate investment, it needs to use an expansionary monetary policy.

The Fed thus increases the money supply by 150/10 = $15 billion.

This will have the total effect of 150 billion on the whole thus achieving the Fed's objectives.

Hope that helps.

4 0
3 years ago
Muffin’s Masonry, Inc.’s, balance sheet lists net fixed assets as $18.00 million. The fixed assets could currently be sold for $
jeyben [28]

Answer:

                                     Book Value                          Market Value

Current Assets              $14 m                                        $14.95 m

Fixed Assets                  $18 m                                        $27 m

Total                               $32 m                                        $41.95 m

Explanation:

For book Value:

Net fixed assets=$18.00 million

Current Liabilities=$7.50 million

net working capital=$6.50 million

Formula:

Net working capital=Current assets-Current Liabilities

$6.50 million=Current assets-$7.50 million

Current Assets=$6.50+$7.50

Current Assets=$14 million

Total Assets=Net fixed assets+Current Assets

Total Assets=$18 m+$14 m

Total Assets=$32 m

For Market Value:

Net fixed assets=$27.00 million

Current Liabilities=$7.50 million

net working capital=$7.45 million

Formula:

Net working capital=Current assets-Current Liabilities

$7.45 million=Current assets-$7.50 million

Current Assets=$7.45+$7.50

Current Assets=$14.95 million

Total Assets=Net fixed assets+Current Assets

Total Assets=$27 m+$14.95 m

Total Assets=$41.95 m

                                     Book Value                          Market Value

Current Assets              $14 m                                        $14.95 m

Fixed Assets                  $18 m                                        $27 m

Total                               $32 m                                        $41.95 m

8 0
3 years ago
Partner Industries sells a single product for $50 that has a variable cost of $30. Fixed costs amount to $5 per unit when antici
Vera_Pavlovna [14]

Answer:

b. $20.

Explanation:

Regardless of what the break-even volume is, at this volume profits are zero.

This means that any unit sold beyond this point will provide a profit equivalent to its marginal benefit, which is its selling price subtracted by its variable cost.

If a product sells for $50 and has a variable cost of $30, by selling one unit in excess of its break-even volume, the profit will be:

P= \$50-\$30 =\$20

The profit will be $20.

8 0
3 years ago
Hailey Corporation pays a constant $9.45 dividend on its stock. The company will maintain this dividend for the next 13 years an
Sloan [31]

Answer:

$64.76

Explanation:

The current share price can be determined by calculating the present value of the dividend

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow from year 1 to 13 = 9.45

I = 10.7

PV = 64.76

To find the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute  

5 0
3 years ago
I need help in this it’s personal finance
Lilit [14]

Answer:

it may personal finance

Explanation:

because it's is include personal site

7 0
3 years ago
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