1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
rosijanka [135]
3 years ago
6

In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five y

ears or so, then find the "terminal" stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.23. The dividends are expected to grow at 18 percent over the next five years. In five years, the estimated payout ratio is 30 percent and the benchmark PE ratio is 18. After five years, the earnings are expected to grow at 7 percent per year. The required return is 14 percent.
Required:
What is the target stock price in five years?(Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Stock price in 5 years $
What is the stock price today?(Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Stock price today $
Business
2 answers:
KiRa [710]3 years ago
6 0

Answer:

Explanation:

Calculation for 5th year dividend.

Year Dividend Growth Dividend

1 1.23 1.18 1.45

2 1.45 1.18 1.71

3 1.71 1.18 2.02

4 2.02 1.18 2.38

5 2.38 1.18 2.81

Now we find EPS for 5th year through payout ratio.

EPS5 = D5 / Payout ratio

EPS5 = $2.81 / 0.30

EPS5 = $9.37

Calculation for price.

P0 = Benchmark PE ratio x EPS5

P0 = 18 ($9.37)

P0 = $168.66

B. What is the stock price today.

Year Dividend Table value at 14% PV of dividend

1 1.45 0.8771 1.27

2 1.71 0.7694 1.32

3 2.02 0.6749 1.36

4 2.38 0.5920 1.41

5 171.47 0.5193 89.04

Total 94.40

Stock price today = $94.40

iogann1982 [59]3 years ago
5 0

Answer:

a)$168.48

b)$48.51

Explanation:

D0 = $1.23

g = 18%

PR = 30%

PE = 18%

E(growth) =7%

RR = 14%

Find the dividend in year five

D1 = 1.23*1.18=1.45, D2 =1.45 *1.18 =1.71, D3= 1.71*1.18 =2.02, D4 = 2.02*1.18 =2.38, D5 = 2.38*1.18=2.81

PR = DPS/EPS

30= 2.81/EPS

EPS=2.81/30%

       =$9.36

to find stock price use the benchmark PE

9.036*18 = $168.48

b) After 5 years earnings to grow at 7%

Discount the dividends at 14 %

1.45/1.14)+1.71/1.14^2 +2.02/1.14^3 +2.38/1.14^4+2.81*1.07/0.14-0.07

=$48.51

You might be interested in
Macroeconomic forces contribute to an industry's ability to be profitable. Which of the following examples shows how a company m
Elis [28]

Answer:

A home mortgage company creates a sales promotion with incentives for potential home buyers to take advantage of a particularly favourable interest rate.

Explanation:

Companies usually give numerous promotions to their valuable customers to increase the overall sales revenue. In the above scenario, if a home mortgage company creates a sales promotion which attracts customers to buy their product and take advantage of the favourable interest rate is an example of companies focusing on macroeconomic factors. Macroeconomic forces are important for any company to improve profits.

6 0
3 years ago
Nishi Corporation prepares financial statements for each month-end. As part of its accounting process, estimated income taxes ar
choli [55]

Answer:

1. $4,100

2a. Dr Income tax Expense $4,100

Cr Income tax payable $4,100

2b. Dr Income tax payable $33,926

Cr Cash $33,926

Explanation:

1. Calculation to Determine the amount of the accounting adjustment

Income tax payable for quarter 4 $33,926

Less: Unadjusted balance in Income tax payable account $29,826

Accounting adjustment to be done as on Dec 31 $4,100

2a. Preparation of journal entries to record December 31

Adjustment to the Income as on Dec 31

Dr Income tax Expense $4,100

Cr Income tax payable $4,100

2b. Preparation of the Journal entry to record later January 20 payment of the fourth-quarter taxes.

January 20 payment of the fourth-quarter taxes.

Dr Income tax payable $33,926

Cr Cash $33,926

3 0
3 years ago
GI Designs, a copper furniture manufacturer, increased the price on its copper tabletops by 20 percent for three months to see w
romanna [79]

Answer:

The correct answer is letter "C": independent variable.

Explanation:

Independent variables are propositions in a study which effects help to analyze certain behavior of a dependent variable. The dependent variable does not change but the independent variables do. There may be more than one independent variable for only one dependent variable.

In the case, <em>the dependent variable is the change in sales at GO designs while the independent variable is the price increase.</em>

3 0
3 years ago
Advertising sales agents typically work under the direct supervision of a manager or supervisor.
wolverine [178]

Advertising sales agents typically work under the direct supervision of a manager or supervisor. True.

Initally, an advertising sales agent works under the direct supervision of a manager or supervisor. They are trained and coached by those who are experienced in the field. Once the sales agent has completed a set amount of hours (based on different agency requirements) they are no longer required to complete check-ins as often. These sales agents are then on their own most of the time by setting their own hours for work as long as they meet company goals.

4 0
3 years ago
Josh separated people who wanted a high quality lawn mower from people who wanted a low priced lawn mower, then saw if different
Vsevolod [243]

Answer:

The correct answer is letter "D": behavioral.

Explanation:

In market segmentation, classifying customers by behavior implies analyzing their consumption patterns to find out what type of product they are likely to buy under what conditions. This research allows companies to know what each type of client is looking for so the corporation can dedicate a tailored item for each market sector. By doing so, the firm increases its opportunities to generate more sales.

3 0
3 years ago
Other questions:
  • Windsor Co. is building a new hockey arena at a cost of $2,420,000. It received a down payment of $510,000 from local businesses
    5·1 answer
  • Using the profitability index method, the present value of cash inflows for project flower is $88,000 and the present value of c
    12·1 answer
  • The original cost of the truck was $32,000. What would be the journal entry for Combs Co. to record the disposal of the delivery
    5·1 answer
  • ___ is any direct to a consumer or business recipient that is designed to generate a response in the form of an order, a request
    6·2 answers
  • What global marketing opportunities and challenges would you face if the simulation were based on a real-world international sit
    15·1 answer
  • The Heckscher-Ohlin model assumes that there are two countries, each of which produces two goods (say manufactures and agricultu
    9·1 answer
  • Explain why full employment may be inconsistent with no shirking. Shirking may be likely with full employment because A. it may
    7·1 answer
  • Potential entrepreneurs would be well advised to surround themselves with people who are smarter than they are.
    15·1 answer
  • Which of the following would not be found in a schedule of noncash investing and financing activities, reported at the end of a
    13·1 answer
  • Which two things do CRM methods accomplish?
    14·2 answers
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!