The Dow Jones Industrial Average is:

"The company will pay a dividend of $15 per share 10 years from today and will increase the dividend by 5 percent per year there

statuscvo [17]

Answer:

Current Share price= $114.21

Explanation:

The Dividend Valuation Model is a technique adopted to detremine the value of an asset. According to this model, the value of an asset is the sum of the present values of the future cash flows that would arise from the asset discounted at the required rate of return (discount rate)

The model is premised on the concept of the time value of money. The idea that $1 today is not the same as $1 tomorrow. The $1 of today is worth more than that of tomorrow; because of the opportunity to earn interest. So to determine the worth of a future cash flow, we compute its worth today- its present value.

The Present Value of a future cash flow is the amount that needs to be invested today at a particular rate of return to equal the same cash flow in the future. Present value means the value in year 0 or now

The process of calculating the present value of a future sum is called discounting. So to calculate the current stock price in this question, we shall discount the future dividends using the required rate of return and then add them together.

So if an asset (e.g a stock) promises some cash flows in the future, those cash flows need to be brought to their present values and then be added to arrive at the value of the asset

In this question, the cash flows are the dividends as given and the rate of return (discount rate) is 15%

So we apply this model as follows:

Step 1 : PV of div from year 1 to 10 = 15× ((1-1.15)^(-10))/0.15) = 75.282

Step 2:PV (in year 10)of div from year 11 onward=(15×1.05)/(0.15-0.05)= 157.5

Step 3:PV(in year 0) of div from year 11 onward = 157.5 × (1.15)^ (-10) = 38.93

Current Share price= $75.282 + $38.93 = $114.21

Note: step 3 is important because the the cash flows from year 11 onward were discounted to arrive at their values in year 10. Since we are interested in the current price i.e year 0 value, it is important that we re-discount again to bring them to their PV in year 0.

8 0

2 years ago

Fred ran short on cash and borrowed $300 through a payday loan company. the company charged him a fee of $60 to borrow the $3

Ne4ueva [31]

The answer is 1.43 % per day. Calculations: Formula for simple interest: I=PRT, where I=interest; P= borrowed amount; R=rate of interest in percentage; T=time for repayment hence; P=$300, I=$60, T=14 days, then R=? R={(I/PT) *100)}% per day={(60/300*14)*100}=1.43 % per day interest rate (R) that Fred was charged for the aforementioned loan was 1.43 % per day

3 0

2 years ago

If the firm had a pronounced seasonal sales pattern or if it grew rapidly during the year, how might that affect the validity of

Lerok [7]

Answer:If the firm had sharp seasonal sales patterns, or if it grew rapidly during the year, many ratios would most likely be distorted.

Explanation: Fluctuations in Economics patterns have distorting effects on the ratios of a company or an economy especially if the the seasonal patterns has been consistent for a certain period. THE VALIDITY OF MOST RATIOS ARE SEVERELY AFFECTED BY SHARP CHANGES WHICH MAKES ECONOMIC WATCHERS FEEL THE RATIOS ALREADY ANALYSED ARE NOT VALID.

A consistent flow pattern is desired in an economy and in business Organisation as it helps to give Economic watchers enough confidence in the ratios already existing.

4 0

3 years ago

What role did patents play in the work of inventors such as Thomas Edison? Patents protected inventors and let them profit from

umka21 [38]

Patents protected inventors and let them profit from their inventions

~Luis~

5 0

2 years ago

Jarrod receives a scholarship of $18,500 from Riggers University to be used to pursue a bachelor's degree. He spends $12,000 on

kodGreya [7K]

Answer:

Jarrod exclude from his gross income of $13,500

Explanation:

The following items which are excluded from the gross income are:

1. Tuition = $12,000

2. Books and supplies = $1,500

The total amount would be equal to

= $12,000 + $1,500

= $13,500

These items would be excluded because the deduction is allowed for these items. Whereas, the room and personal expenses are taxable. Hence, it would be included in the gross income

8 0

2 years ago