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Citrus2011 [14]
3 years ago
12

Sawchuck Consulting has been profitable for the last 5 years, but it has never paid a dividend. Management has indicated that it

plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value?Year 0 1 2 3 4 5 6Growth rate NA NA NA NA 50.00% 25.00% 8.00%Dividends $0.000 $0.000 $0.000 $0.250 $0.375 $0.469 $0.506a. $9.94b. $10.19c. $10.45d. $10.72e. $10.99
Business
2 answers:
FromTheMoon [43]3 years ago
8 0

Answer:

The answer is d

Explanation:

This question is assessing the dividend growth model which is used to assess how profitable a company is based on its stock valuation. Sawchuck's stock's current value is computed via a multi-stage dividend growth model. The growth rate of 50% in year 4 and 25% in year 5 is used to compute the expected cash flows in those years. Thereafter, the 8% perpetuity rate is applied to compute the expected dividend in perpetuity. After this, the present values (PV) of these cash flows are computed using the required rate of  return of 11.00%. After this, the present value of the stable dividend growth is computed as an estimate of anticipated future cash flows. The resulting valuation of 10.72798286  is obtained via summation of all present values:

  1. PV of Year 3: 0.182797845  ( 0.25/(1.11ᶺ3 ))
  2. PV of Year 4: 0.247024115  ( 0.375/(1.11ᶺ4) )
  3. PV of Year 5: 0.278328672  (0.469/(1.11ᶺ5) )
  4. PV of dividend in perpetuity: 10.01983222

Please see attached file for further calculations.

Download pdf
Scorpion4ik [409]3 years ago
5 0

Answer:

The correct answer is d

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120 degrees

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Cheers

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3 years ago
Which organizational structure is easily displayed in student's notes written in two columns with an action on the left column a
Stels [109]

Answer:

A. cause and effect

Explanation:

Based on the scenario being described within the question it can be said that the structure that is being mentioned is known as cause and effect. This basically refers to a structure in which the action or cause is written and detailed out on one side while the result/effect is written and detailed out on the opposing side to indicate a connection between both.

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3 years ago
Human capital is
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B: an important determinant of wages, and it affects the production of goods and services.

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6 0
3 years ago
Foster, Inc., purchased a truck by paying $5,000 and borrowing the remaining $30,000 required to complete the transaction. Ident
neonofarm [45]

Answer: c. Foster Inc.'s assets will decrease by a net amount of $30,000.

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6 0
3 years ago
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Minchanka [31]

Answer:

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Explanation:

The computation of the  total investment securities reported is shown below:

= ABC Co. bonds amortization cost for year 2015 + DEF Co fair value for year 2015 + GEH Inc fair value for the year 2015 + IJK Inc fair value for the year 2015 + LMN co stock fair value for the year 2015

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We simply applied the above formula

6 0
3 years ago
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