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anygoal [31]
3 years ago
7

Storico Co. just paid a dividend of $2.05 per share. The company will increase its dividend by 24 percent next year and then red

uce its dividend growth rate by 6 percentage points per year until it reaches the industry average of 6 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on the company's stock is 10 percent, what will a share of stock sell for today
Business
1 answer:
VikaD [51]3 years ago
5 0

Answer:

A share of stock sell for <u>$74.21 </u>today.

Explanation:

This can be calculated as follows:

Dividend per share in year 1 = Year 0 dividend * (1 + growth rate of year 1 dividend) = $2.05 * (1 + 24%) = $2.5420

PV of year 1 dividend per share = Year 1 dividend / (1 + rate of return)^1 = $2.5420 * / (1 + 10%)^1 = $2.31090909090909

Dividend per share in year 2 = Year 1 dividend * (1 + growth rate of year 1 dividend) = $2.5420 * (1 + (24% -6%)) = $2.5420 * (1 + 18%) =$3.00

PV of year 2 dividend per share = Year 2 dividend / (1 + rate of return)^2 = $3.00 / (1 + 10%)^2 = $2.47933884297521

Dividend per share in year 3 = Year 2 dividend * (1 + growth rate of year 2 dividend) = $3.00 * (1 + (18% -6%)) = $3.00 * (1 + 12%) =$3.36

PV of year 3 dividend per share = Year 3 dividend / (1 + rate of return)^3 = $3.36 / (1 + 10%)^3 = $2.5244177310293

Dividend per share in year 4 = Year 3 dividend * (1 + growth rate of year 3 dividend) = $3.36 * (1 + (12% -6%)) = $3.36 * (1 + 6%) =$3.5616

PV of year 4 dividend per share = Year 4 dividend / (1 + rate of return)^4 = $3.5616 / (1 + 10%)^4 = $2.43262072262824

Dividend per share in year 5 = Year 4 dividend * (1 + growth rate of year 4 dividend) = $3.5616 * (1 + 6%) = $3.775296

Price at year 4 = Year 5 dividend / (Rate of return – growth rate) = $3.775296 / (10% - 6%) = $94.3824

PV of price at year 4 = Price at year 4 / (1 + rate of return)^4 = $94.3824 / (1 + 10%)^4 = $64.4644491496482

Share price to day = PV of year 1 dividend per share + PV of year 2 dividend per share + PV of year 4 dividend per share + PV of year 4 dividend per share + PV of price at year 4 = $2.31090909090909 + $2.47933884297521 + $2.5244177310293 + $2.43262072262824 + $64.4644491496482 = $74.21

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A bond with a face value of $6,000 and an annual coupon rate of 12% convertible semiannually will mature in ten years for its fa
Alinara [238K]

Answer:

Premium is $2,677.95

The premium amortization on the 7th payment is $119

Explanation:

In order to arrive at the premium on the bond,it is necessary to compute the issuing price of the bond,which can be done using the pv formula in excel as shown below:

=-pv(rate,nper,pmt,fv)

rate is the semi-annual yield to maturity on the bond which is 6%/2=3%

nper is the number of coupon interest payable by the bond,which is 10 years multiplied by 2=20

pmt is the semi-annual coupon payable by the  bond i.e 12%/2*$6000=$360

fv is the face value of the bond which is $6,000

=-pv(3%,20,360,6000)

pv=$8,677.95  

premium=issue price -face value

premium=$$8,677.95-$6,000

premium=$2,677.95

The premium amortization is the excess of coupon payment  over the interest expense.

In the attached, I calculated the premium amortization on the 7th payment.

I started by taking the issue price of $8677.95 ,added interest expense at 3% semi-annually ,deducted the coupon payment of $360,thereby leaving the outstanding balance at end of the year.

Note that the premium amortization is the excess of coupon payment over interest expense as colored coded.

Download xlsx
5 0
3 years ago
On January 1, Jim Shorts Corporation issued $300 million face value bonds for $580 million. During the same year, $1,500,000 of
ankoles [38]

Answer: a deduction from net income of $1,500,000.

Explanation:

Based on the statements provided in the question, it should be noted that Jim Shorts Corporation should report a deduction from net income of $1,500,000 on the statement of cash flows prepared by the indirect method.

It should be noted that the caah flow statement would start the accrual basis of the net income under an indirect method of the cash flow and then, all the non-cash items would either be added or subtracted in order for the reconciliation of account.

8 0
3 years ago
As a result of a thorough physical inventory, Horace Company determined that it had inventory worth $320,000 at December 31, 201
Alex_Xolod [135]

Answer:

Option (b) is correct.

Explanation:

Correct amount of inventory to be reported:

Amount of inventory as per physical verification = $320,000

Cost of goods under consignment to Herschel Corporation = $47,000

Value of inventory to be reported:

= Amount of inventory as per physical verification + Cost of goods under consignment to Herschel Corporation

= $320,000 + $47,000

= $367,000

3 0
3 years ago
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