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
omeli [17]
3 years ago
13

"The company will pay a dividend of $15 per share 10 years from today and will increase the dividend by 5 percent per year there

after. If the required return on this stock is 15 percent, what is the current share price?"
Business
1 answer:
statuscvo [17]3 years ago
8 0

Answer:

Current Share price= $114.21

Explanation:

The Dividend Valuation Model is a technique adopted to detremine the value of an asset. According to this model, the value of an asset is the sum of the present values of the future cash flows that would arise from the asset discounted at the required rate of return (discount rate)

The model is premised on the concept of the time value of money. The idea that $1 today is not the same as $1 tomorrow. The $1 of today is worth more than that of tomorrow; because of the opportunity to earn interest. So to determine the worth of a future cash flow, we compute its worth today- its present value.

The Present Value of a future cash flow is the amount that needs to be invested today at a particular rate of return to equal the same cash flow in the future. Present value means the value in year 0 or now

The process of calculating the present value of a future sum is called discounting. So to calculate the current stock price in this question, we shall discount the future dividends using the required rate of return and then add them together.

So if an asset (e.g a stock) promises some cash flows in the future, those cash flows need to be brought to their present values and then be added to arrive at the value of the asset

In this question, the cash flows are the dividends as given and the rate of return (discount rate) is 15%

So we apply this model as follows:

Step 1 : PV of div from year 1 to 10  =  15× ((1-1.15)^(-10))/0.15)  =  75.282

Step 2:PV (in year 10)of div from year 11 onward=(15×1.05)/(0.15-0.05)=  157.5

Step 3:PV(in year 0) of div from year 11 onward =  157.5 × (1.15)^ (-10) =  38.93

Current Share price= $75.282 + $38.93 = $114.21

<em>Note:</em><em> step 3 is important because the the cash flows from year 11 onward were discounted to arrive at their values in year 10. Since we are interested in the current price i.e year 0 value, it is important that we re-discount again to bring them to their PV in year 0.</em>

You might be interested in
A Statement of Financial Position is a formal statement presenting the three accounting elements which are?
RSB [31]

The financial statement called the Statement of Financial Position is also known as the Balance Sheet.

The three accounting elements that are included on this statement are the Assets, Liabilities and Owner’s Equity.

4 0
3 years ago
As the result of an increase in capital the demand for labor would_______, the supply of labor would ________, and the quantity
Mademuasel [1]

Answer:

The correct answer here is option b.

Explanation:

When here is an increase in capital, the firm would like to produce more. So, the demand for labor would increase. Though the supply of labor would remain the same as it is not affected by the change in capital.

With the shift in the demand curve, the quantity of labor hired would increase as well. With no change in labor supply, the wage rate will increase as well.

8 0
3 years ago
Answer it ....the question is in the pic​
Tatiana [17]

Answer:

business activities in India

<h3>1) Manufacturing - </h3>

  • When product is manufacture or made to that it cn be sold in Market
<h3> </h3><h3>2) storage - </h3>

  • After the product is ready it required some space to store until it would sold in the market

<h3>3) transporting</h3>

  • as per the demand it will transport from one place to another

<h3>4) financing - </h3>

  • It requires some money to meet the expense before solding a product

<h3>5) marketing</h3>
  • to let people know about the product so that more products will be sold

There are other activities also such as managing, accounting etc

4 0
2 years ago
HELP FAST PLEASE!!!!! Information you should consider when researching and comparing careers include all of the following except
Butoxors [25]

Answer:

What your friends are doing.

Explanation:

The reason why the answer is what your friends are doing, is because it is in most cases, unnecessary. Even though it might seem like it is necessary, but if you really think about it, you are looking for jobs FOR YOU and you alone. What your friends are doing for their career, will most likely differ from what you would want to do.

7 0
3 years ago
Hrustic Company issued $750,000 of 12% convertible bonds at face value on an interest payment date several years ago. The face v
mina [271]

Answer: The bondholders decided to convert the bonds into common stock because they believed that getting $2250 today is worth more than $120 interest every year and a $1000 principal payment at the end of the bonds life.

Explanation:

1) In order to find out the number of bonds issued we need to divide 750,000 (Total ) by 1000(Face value of each bond).Total number of bonds issues therefore are 750.

2) A 12 percent convertible bond means that the bond pays a coupon of 120 ( 0.12 * 1000) every year.

3) Each bond is convertible into 25 shares , which means if one bond is converted into common stock, the bond holder can earn $1750. We calculate this number by multiplying the number of shares which is 25 into the current market price of the shares which is 70.

4) Also the company is offering an extra  $500 per bond for converting it which means (500/25) an extra $20 per share.

5) So in total the bondholder by converting a bond and selling the shares he gets by converting it can earn $2250 per bond which they bought for a $1000 and gives them 120$ of interest every year.

6) SO to conclude the bondholders decided to convert the bonds into common stock because they believed that getting $2250 today is worth more than $120 interest every year and a $1000 principal payment at the end of the bonds life.

5 0
3 years ago
Other questions:
  • The matching principle, as applied to bad debts, requires:
    14·1 answer
  • Marc recently went to his bank's website to check the payment due date on
    11·1 answer
  • Which aspect of federal government policy is BEST described by the definition below? the actions the Federal Reserve takes to in
    13·1 answer
  • Hardware failure is the least likely of threats to one's data. <br><br> a. True <br><br> b. False
    7·1 answer
  • 225,000 cartons of machine screws per year to support its manufacturing needs over the next seven years, and you've decided to b
    5·1 answer
  • Freda's Florist reported the following before-tax income statement items for the year ended December 31, 2018: Operating income
    13·1 answer
  • Fun fact: The average person walks past a murderer 36 times in their life It's a fun fact because they didn't kill you.
    8·2 answers
  • ABC Motors ordinarily deals in used cars and does some amount of repair work. Robby entrusted his automobile to ABC Motors to ha
    13·1 answer
  • What remarketing audiences cannot be defined by default?.
    9·1 answer
  • How are enterprise state roaming (esr) profiles different from other traditional user profiles?
    7·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!