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CaHeK987 [17]
3 years ago
13

Drake Custom Cycles' common stock currently pays no dividends. The company plans to begin paying dividends beginning 3 years fro

m today. The first dividend will be $3.00, and dividends will grow at 5 percent per year thereafter. Given a required return of 15 percent, what would you pay for the stock today
Business
1 answer:
kifflom [539]3 years ago
5 0

Answer:

The maximum price that should be paid for this stock today is $20.71

Explanation:

The company will pay its first dividend in Year 3 which means the dividend of $3 is D3. Using the constant growth model of DDM we can calculate the price of this stock at year 3. We will discount back that to the present value to calculate the price of the stock today. the price at year 3 using the constant growth model will be,

P3 = D4 / r - g

P3 = 3 * (1+0.05)  /  (0.15 - 0.05)

P3 = $31.5

The maximum price that should be paid for this stock today is,

P0 = 31.5 / (1+0.15)^3

P0 = $20.71

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For example a customer buys a laptop online and after a few days, customers found hanging issues. Customers will dial a customer care number of that particular brand and get helped from them.

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tulip Co. owns 100% of Daisy Co.'s outstanding common stock. Tulip's cost of goods sold for the year totals $600,000, and Daisy'
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Answer:

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In our case the entire inventory is sold to third party by the year end.

Therefore, entire profit will be recognized and cost of goods sold to be shown in consolidated financial statements = $600,000 + $400,000 = $1,000,000.

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