Answer:
Current dividend paid (Do) = $1.35
Growth rate (g) = 11% = 0.11
Cost of equity (ke) = 24% = 0.24
Po = Do<u>(1 + g)</u>
Ke - g
Po = $1.35<u>(1 + 0.11)</u>
0.24 - 0.11
Po = <u>$1.4985</u>
0.13
Po = $11.53
Explanation:
The current market price of the stock is a function of current dividend paid, subject to growth rate, divided by the current market price of the stock.
Answer:
The stock A is most valuable as the fair value of Stock A is $100 which is more than the fair value of Stock B ( $83.33) and Stock C ($34.28).
Explanation:
to calculate the fair price of the stocks, we will use the DDM or dividend discount model. The DDM bases the value of a stock on the present value of the expected future dividends from the stock.
Let r be the discount rate which is 10%.
a.
The stock is like a perpetuity as it pays a constant dividend after equal intervals of time and for an indefinite period.
The price of this stock can be calculated as,
Price or P0 = Dividend / r
P0 = 10 / 0.1 = $100
b.
The constant growth model of DDM can be used to calculate the price of this stock as its dividends are growing at a constant rate forever.
P0 = D1 / r - g
Where,
- D1 is the dividend for the next period
- r is the cost of equity or discount rate
- g is the growth rate in dividends
P0 = 5 / (0.1 - 0.04)
P0 = $83.33
c.
The price of this stock can be calculated using the present of dividends.
P0 = 5 / (1+0.1) + 5 * (1+0.2) / (1+0.1)^2 + 5 * (1+0.2)^2 / (1+0.1)^3 +
5 * (1+0.2)^3 / (1+0.1)^4 + 5 * (1+0.2)^4 / (1+0.1)^5 + 5 * (1+0.2)^5 / (1+0.1)^6
P0 = $34.28
Answer:
c. I, II, and III only
Explanation:
As we know that
Free cash flow = Earnings before Interest and Taxes × (1-Tax Rate) + Amortization and Depreciation expense - Change in Net Working Capital -Capital Expenditure
And, the Net income is determined after considering all cash and non cash expenses.
Therefore, I, II and III statements are considered
Hence, the option c is correct
Answer:
Letter A is correct. <u>Cause-oriented.</u>
Explanation:
A cause-oriented approach to problem solving is a method characterized by focusing on the history of the problem and then thereafter finding the root cause that originated it.
It is a very effective method when used to find solutions to various organizational problems that are apparently unsolved.
