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
julia-pushkina [17]
3 years ago
10

A fast growing firm recently paid a dividend of $0.80 per share. The dividend is expected to increase at a rate of 30% rate for

the next 4 years. Afterwards, a more stable 7% growth rate can be assumed. If a 10% discount rate is appropriate for this stock, what is its value?
A.$60.48
B. $60.18
C. $61.34
D. $73.86
Business
1 answer:
Katyanochek1 [597]3 years ago
4 0

Answer:

The value of the stock today is $60.48 and option A is the correct answer.

Explanation:

The two stage growth model of DDM will be used to calculate the value of this stock today. The two stage growth model is used when there are 2 different dividend growth rates. The 30% growth rate can be termed as g1 while the 7% growth rate which is assumed to remain constant forever can be termed as g2.

The formula for price/value under this model is,

Value or P0  = D1 / (1+r)  +  D2 / (1+r)^2  +  ...  +  Dn / (1+r)^n  +  

[Dn * (1+g2)  /  (r - g2)]  /  (1+r)^n

Value today = 0.8 * (1+0.3) / (1+0.1)  +  0.8 * (1+0.3)^2 / (1+0.1)^2  +  

0.8 * (1+0.3)^3 / (1+0.1)^3  +  0.8 * (1+0.3)^4 / (1+0.1)^4  +  

[ (0.8 * (1+0.3)^4 * (1+0.07)  /  (0.1 - 0.07))  /  (1+0.1)^4 ]

Value today = $60.60 which is closest to $60.48 and A is the answer.

The difference of $0.12 in the answer is because of the rounding off as the immediate calculations were not rounded off in the calculation of $60.60

You might be interested in
Marginal productivity theory assumes that a worker’s income is a function of the contribution of that worker to the value of the
Dmitriy789 [7]

Marginal productivity theory assumes that a worker’s income is a function of the contribution of that worker to the value of the output. in business, this is called the "value-added" approach.

There is a correct theory called marginal productivity theory. Wages are paid at a level equal to the marginal revenue product of labor, the MRP (value of the marginal product of labor). MRP is the increase in income caused by the increase in output produced by the last employed worker.

The marginal productivity theory of income distribution proposes that each individual should receive income based on their contribution to total output. The marginal productivity theory of income distribution has been criticized for the following reasons. Income from inheritance is inconsistent with the theory.

Learn more about Marginal revenue here: brainly.com/question/13617399

#SPJ4

7 0
2 years ago
The partnership of Brandon and Ryan is being liquidated. All gains and losses are shared in a 3:1 ratio, respectively. Before li
Travka [436]
The answers are the following:
a. 
Brandon:
$7,000 + [($10,000/4)×3¿= $8,500
Ryan:
$7,000 + [($10,000/4)×1¿= $7,500

b.
Brandon $7,000
Ryan <span>$7,000</span>
6 0
3 years ago
What would cause an increase in the equilibrium price of a good?
crimeas [40]

Answer:

Demand and supply

Explanation:

Demand and supply are the two factors which effect the equilibrium of price. If demand increases and the supplies remains constant the price will increase. On the other hand when demand decrease and the supplies remains constant the price will fall. So these two factors effect the Equilibrium price of a good.

5 0
3 years ago
Monica wants to pursue a degree in psychology and has enrolled in the bachelor of arts program at ashford. her ultimate goal is
solong [7]
Gigabytes?? I am old skool...but I think that may b your answer...Google it tho...
8 0
3 years ago
What are 3 examples of things that may be built with Municipal bonds?
Troyanec [42]

Answer:

hospitals, highways, schools

Explanation:

A municipal bond is a type of debt security made by government entities in order to finance <em>capex </em>(capital expenditures), mainly for the construction of hospitals, highways, schools.

They represent loans that investors give to such government entities and they are usually exempt from the usual taxes on building such things.

7 0
3 years ago
Other questions:
  • a company had no office supplies available at the beginning of the year. during the year, the company purchased $370 worth of of
    8·1 answer
  • In its Declaration of Secession, South Carolina uses the Declaration of Independence to establish:
    5·1 answer
  • After arriving at the airport, Sharon picked up her compact rental car with an odometer reading of 39,987 miles. When she brough
    6·1 answer
  • Lightning Electronics is a midsize manufacturer of lithium batteries. The company’s payroll records for the November 1–14 pay pe
    9·1 answer
  • 1. When the Fed sells bonds in open-market operations, it _____________ the money supply.
    6·1 answer
  • Calculate the predetermined overhead rate per direct labor hour if the average direct labor rate is $12.21 per hour. 2. Determin
    10·1 answer
  • Even though Miller loves bacon, he is worried about his cholesterol. He is also concerned how eating bacon may affect it. Before
    8·1 answer
  • The following table shows a simplified consolidated balance sheet for the entire
    8·1 answer
  • Partners Dennis and Lilly have decided to liquidate their business. The following information is available:
    15·1 answer
  • Form 8889, Part 1 is used to report HSA contributions made by _______________. A. Carol B. Carol’s employer C. Carol’s cousin D.
    13·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!