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Julli [10]
3 years ago
5

"Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 20 percent for the next three years, with the growt

h rate falling off to a constant 5 percent thereafter. If the required return is 11 percent, and the company just paid a dividend of $3.10, what is the current share price
Business
1 answer:
ladessa [460]3 years ago
4 0

Solution:

D_{0} = $3.10, D_{1} - D_{3}= 20%, D_{4} += 5%, R = 11%

D_{1} = $3.10 • (1 + .20) = $3.10 • 1.20 = $3.720

D_{2} = $3.10 • (1 + .20)^{2} = $3.10 • 1.44 = $4.464

D_{3} = $3.10 • (1 + .20)^{3}= $3.10 • 1.728 = $5.357

D_{4} = $5.357 • (1 + 05) = $5.624

P_{3} = D_{4} / (R – g)= $5.624 / 0.06= $93.744

P_{0} = D_{1}  +  D_{2} + D_{3} + P_{3} =(1 + R) (1 + R) ^{2} (1 + R)^{3}

= $3.720 + $4.464 + $5.357 + $93.744

=  (1 + .11) (1 + .11)2(1 + .11)3= $3.720 + $4.464 + $99.101

=(1.11) (1.11)2(1.11)3= $3.720 + $4.464 + $99.101

=1.11 1.232 1.368= $3.351 + $3.623 + $72.462 = $79.44

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On June 30, 2011, Cole Inc., exchanged 3,000 shares of Stone Corp. $30 par value common stock for a patent owned by Gore Co. The
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Suppose your employer offers you a choice between a $ 5 comma 000 bonus and 100 shares of the​ company's stock. Whichever one yo
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