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DIA [1.3K]
3 years ago
11

15. Hallmark Inc. has dividend per share of $2.10, $2.65, $3.03 and $3.22 for the next four years. The company believes that the

income will grow by a constant 4% after year four. Discount rate is 7%. What is the value of Hallmark Inc.?
Business
1 answer:
Snowcat [4.5K]3 years ago
7 0

Answer:

P0 = $94.36658 rounded off to $94.37

Explanation:

To calculate the value per share of Hallmark Inc. we will use the dividend discount model or DDM, DDM values the price of a stock based on the present value of the expected future dividends from the stock. The formula for price under DDM of this stock is,

P0 = D1 / (1+r)  +  D2 / (1+r)^2  +  D3 / (1+r)^3  +  D4 / (1+r)^4  +  

[(D4 * (1+g)) / (r - g)] / (1+r)^4

Where,

  • r is the required rate of return
  • g is the constant growth rate
  • P0 is price or value per share today

P0 = 2.1 / (1+0.07)  +  2.65 / (1+0.07)^2  +  3.03 / (1+0.07)^3  +  

3.22 / (1+0.07)^4  +  [(3.22 * (1+0.04)) / (0.07 - 0.04)] / (1+0.07)^4

P0 = $94.36658 rounded off to $94.37

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Answer:

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4 0
3 years ago
Tony works in purchasing for the Epic Electronics on the East Coast. He arrives at work at 6:00 a.m. and leaves by 3:00 p.m. He
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