Question

Vincent’s Hotel currently pays a $2.20 common stock dividend. Dividends have been recently growing at a 3% annual rate and are expected to continue growing at this rate for the next 2 years. Thereafter, the growth rate is expected to be 0% for the foreseeable future. What is the current value of Vincent’s Hotel common stock to an investor requiring 17% rate of return?

Answer 1

Answer:

The current value of Vincent's Hotel common stock is US$ 12.95, that fulfills the requirement of an investor of 17% of rate of return annually.

Step-by-step explanation:

1. Let's review the information given for answering correctly the question:

Currently common stock dividend = US$ 2.20

Annual growth of the dividend for the next 2 years = 3%

Annual growth of the dividend after the next 2 years = 0%

2. What is the current value of Vincent’s Hotel common stock to an investor requiring 17% rate of return?

17% = 0.17

Current value of Vincent's Hotel common stock = 2.20/0.17

Current value of Vincent's Hotel common stock = US$ 12.95

Answer 2

Vincent's current hotel stock value is $ 2.574

Further Explanation

Stock price = value to be paid at this time (now)

Whereas the dividend and selling price are $ 2.20 a year later so that the present value is needed

Stock price = ($ 2.20 + $ 0.374) / (1 + 17%) = $ 2.574

Thus, the maximum price you dare pay for the stock is $ 2.574

This means that if the stock is offered at a price above $ 2.574, then it is rejected and vice versa if the stock is offered at a price below $ 2.574, the stock is purchased.

Features of Common Stock

• Voting Rights
• The right to be represented if unable to attend the RUPS (proxy rights)
• Right to Pre-emptive Shares, namely when an issuer issues new shares, old shareholders can buy new shares (if desired) offered according to the portion of their shares so that the composition of ownership remains the same
• Stock Type
• Other rights
• Dividends distributed according to the proportion of shares owned proportionally.
• The distribution of the remaining assets during liquidation (company liquidation) also depends on the proportion of shares owned proportionally.

Learn More

Current Stock Value  brainly.com/question/14005389

common stock brainly.com/question/14005389

Detail

Class: Middle School

Subject: Mathematics

Keywords: stock, value, price