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amm1812
2 years ago
12

Prock Petroleum's stock has a required return of 15%, and the stock sells for $60 per share. The firm just paid a dividend of $1

.00, and the dividend is expected to grow by 30% per year for the next 4 years, so D 4 = $1.00(1.30) 4 = $2.8561. After Year 4, the dividend is expected to grow at a constant rate of X% per year forever. What is the stock's expected constant growth rate after Year 4, i.e., what is X? Pick the closest answer.
Business
2 answers:
Citrus2011 [14]2 years ago
8 0

Answer:

g = 0,116559243

Explanation:

First we solve for the present value of the know dividends:

\left[\begin{array}{ccc}#&Cashflow&Discounted\\Zero&1&\\1&1.3&1.13\\2&1.69&1.28\\3&2.197&1.44\\4&2.8561&1.63\\\end{array}\right]

We add them and get: 5.48

as the stock sells for 60 dollar the 54.52 represent the horizon value discounted:

\frac{Maturity}{(1 + rate)^{time} } = PV

\frac{Maturity}{(1 + .15)^{4} } = 54.52

Horizon value = 95.36281912

Now, we solve for grow:

\frac{D_{n+1}}{r-g} = PV\\\frac{D_0(1+g)}{r-g} = PV\\

\frac{2.8561(1+g)}{0.15-g} = 95.36281912\\

2.8561 + 2.8561g = 0.15 x 95.36281912 - 95.36281912g

95.36281912g + 2.8561g = 14,304422868‬ - 2.8561

g =  11,448322868‬ / 98,21891912

g = 0,116559243

Ganezh [65]2 years ago
6 0

Answer:

Price =[PVF15%,1*D1]+[PVF15%,2*D2]+[PVF15%,3*D3]+[PVF15%,4*D4]+[PVF15%,4*Terminal value at year4 ]

60 = [.86957* 1.3]+[.75614*1.69]+[.65752*2.197]+[.57175*2.8561]+[.57175*TV]

     = 1.1304+ 1.2779+ 1.4446+ 1.6330+ .57175TV

60 = 5.4859+.57175TV

Terminal value = [60-5.4859]/.57175

         = 54.5141/.57175

       = $ 95.3460

Terminal value=D4(1+g)/(Rs-g)

95.3460 =2.8561(1+g)/(.15-g)

95.3460(.15-g)= 2.8561-2.8561g

  14.3019- 95.3460g = 2.8561-2.8561g

   95.3460g-2.8561g = 14.3019-2.8561

     92.4899 g = 11.4458

   g = 11.4458/92.4899

        = .1238 or 12.38%

Growth after year4 = 12.38%

**D1 =1(1+.30)=1.3

D2 =1.3(1+.3)=1.69

D3 = 1.69(1+.3)= 2.197

D4= 2.197(1+.3)= 2.8561

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Answer:

A

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Answer:

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Explanation:

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7 0
3 years ago
1) A stock pays a dividend of $10 per share. It has a cost of capital, K of 8%. It has a constant growth rate of 3%. Use the Con
alekssr [168]

Answer:

answer is A) $206 B) $61.31

Explanation:

to calculate price of the stock at zero we use dividend discount model formula

P0= D(1+G)/(r-g)

     10(1.03)/(0.08-0.03)

       $206

b) The dividend is said to be 2% of the free cash flow therefore can be calculated as $10*0.2=$2 per share

then calculate divide growth rates

D1=2*1.3 =2.6

D2=2*(1.3)(1.3)=3.38

D3 = 2*(1.3)(1.3)(1.3)=4.394

Claculate the discount rate using CAPM according to given information

R= 0.2+ 1.5(0.08-0.02)

 = 0.11/11%

Use the dividend discount model to calculate the price of the stock

P0= 2.6/1.11+3.38/1.3²+4.394*(1.05)/(0.11-0.05)

2.342+2.743+56.225

=$61.31

7 0
3 years ago
List the four responsibilities businesses have to customers.
Rainbow [258]

Answer:

good luck bro you got this

Explanation:

to provide after-sale service on the basis of the nature of a product

to provide information about the changes introduced by the business

to take necessary steps to improve quality, reduce price and develop the network for distribution

to supply better quality goods at the right time at a reasonable price

4 0
3 years ago
Select True or False.
m_a_m_a [10]

Answer:

False.

Explanation:

Wholesalers are used to sell consumer products.. but not business products.

6 0
2 years ago
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