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
IrinaVladis [17]
3 years ago
13

You are considering the purchase of a common stock that paid a dividend of $3.00 yesterday. You expect this stock to have a grow

th rate of 20 percent for the next 3 years and the long-run normal growth rate after year 3 is expected to be constant at 5 percent. If you require a 14 percent rate of return, the price per share that you should you be willing to pay for this stock is closest to:
Business
1 answer:
Ray Of Light [21]3 years ago
6 0

Answer:

$50.8

Explanation:

As per given Data

Dividend Paid = $3

Worth of the stock is the present value of all the cash flows associated with the stock. Dividend is the only cash flow that a stock holder receives against its investment in the stocks. We need to calculate the present values of all the dividend payments.

Formula for PV of dividend

PV of Dividend = Dividend x ( 1 + growth rate )^n x ( 1 + r )^-n

1st year

PV of Dividend = $3 x ( 1 + 20%)^1 x ( 1 + 14% )^-1 = $3.16

2nd year

PV of Dividend = $3 x ( 1 + 20%)^2 x ( 1 + 14% )^-2 = $3.32

3rd year

PV of Dividend = $3 x ( 1 + 20%)^3 x ( 1 + 14% )^-3 = $3.50

After three years the dividend will grow at a constant rate of 5%, so we will use the following formula to calculate the present value

PV of Dividend = [ $3 x ( 1 + 20%)^3 x ( 1 + 5%) / ( 14% - 5% ) ] x [ ( 1 + 14% )^-3 ]

PV of Dividend = $40.82

Value of Stock = $3.16 + $3.32 + $3.50 + $40.82 = $50.8

You might be interested in
The hospitality and tourism industry grew out of what activity?
netineya [11]
Trading of goods because people came back for more
5 0
3 years ago
Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. Accor
Mrrafil [7]

Answer:

The answer would be B) 8 percent.

Explanation:

4 0
3 years ago
It is blank for motorcycles to pass between cars in the middle of traffic lanes
Natali [406]
<span /><span>It is not okay for motorcycles to pass between cars in the middle of traffic lanes.</span>
5 0
3 years ago
The most recurring item on a data list
Olin [163]
Make use of Python Counter which returns count of each element in the list.
8 0
2 years ago
Chapter 12 is meant primarily for: A. farmers B. states C. taxing districts D. municipalities
Paul [167]

Chapter 12 is meant primarily for: A. Farmers

3 0
3 years ago
Other questions:
  • In an informationally efficient capital market: Group of answer choices security prices quickly reflect new information. investo
    9·2 answers
  • A company can deem an employee as salaried
    7·1 answer
  • Liquidity Ratios You have the following information on Marco's Polo Shop: total liabilities and equity = $212 million; current l
    5·1 answer
  • There are fundamentally two possible changes in an economy that will each cause inflation unless other compensating changes also
    13·1 answer
  • Let's assume that your favorite musician (who sells platinum records and has sold-out concerts) is a great cook. He also makes s
    9·1 answer
  • The stock is currently selling for $15.25 per share, and its noncallable $1,000 par value, 20-year, 7.25% bonds with semiannual
    14·1 answer
  • Which party to a contract absorbs the preponderance of cost risk when a firm-fixed-price (ffp) contract is used?
    6·1 answer
  • "The Talley Corporation had taxable operating income of $345,000 (i.e., earnings from operating revenues minus all operating cos
    14·1 answer
  • A broker received a very high offer on a piece of property from a buyer. Bill makes a low offer through a "dummy" purchaser, or
    11·1 answer
  • please subscribe my mom's channel those who subscribed my mom's channel I will mark as brainlylist,thnx and follow 101 % gaurant
    7·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!