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Aleksandr-060686 [28]
3 years ago
5

The firm projects a rapid growth of 40 percent for the next two years and then a growth rate of 20 percent for the following two

years. After that, the firm expects a constant-growth rate of 8 percent. The firm expects to pay its first dividend of $1.25 a year from now. If your required rate of return on such stocks is 20 percent, what is the current price of the stock
Business
1 answer:
il63 [147K]3 years ago
7 0

Answer:

The price of the stock today is $15.63

Explanation:

The three stage Dividend Discount model will be used to calculate the price of this stock as the dividends are growing at three different growth rates. These dividends will be discounted back to calculate the price of the stock today.

The price per share today under this model will be:

P0 = D1 / (1+r) + D2 / (1+r)^2 + ... + Dn / (1+r)^n + [Dn * (1+gC) / (r - gC)] / (1+r)^n

Where,

  • D1 is the dividend expected for the next period of Year 1.
  • gC is the constant growth rate or third stage growth rate that will last forever.

P0 = 1.25 / (1+0.2)  +  1.25 * (1+0.4) / (1+0.2)^2  +  1.25 * (1+0.4) * (1+0.2) / (1+0.2)^3  +  1.25 * (1+0.4) * (1+0.2)^2  /  (1+0.2)^4  +  

[1.25 * (1+0.4) * (1+0.2)^2 * (1+0.08)  /  (0.2 - 0.08)]  /  (1+0.2)^4

The P0 = $15.625 rounded off to $15.63

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Basically, being able to understand this is necessary, because you need to respect others unless you want to be deemed ingnorant

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General administration

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If the government reduces taxes, Crystal (according to the New classical) will believe that the government will raise taxes in future to make up for the shortfall so she will send the $2,500 to savings so she can be able to pay off the future taxes.

If the government increases spending, Crystal will believe that this will be financed by future tax increases so she will still save the money to pay off future taxes.

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Discounted cash flow methods consider the present value of the cash flows after the recovery of the initial investment. quizlet
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<h3>What is cash flow?</h3>

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Does Amit drive a car safely? (into statement)​
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Answer:

That question in statement form is "Amit drives a car safely"

Explanation:

We know this because it's a response to the question. When asking "Does Amit drive a car safely", we would most likely say "Yes, Amit drives a car safely" or "No, Amit does not drive a car safely". Hope this helps!

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