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charle [14.2K]
3 years ago
9

Keidis Industries will pay a dividend of $2.85, $3.95, and $5.15 per share for each of the next three years, respectively. In fo

ur years, you believe that the company will be acquired for $46.00 per share. The return on similar stocks is 9.5 percent. What is the current stock price? a) $54.72 b) $45.64 c) $42.38 d) $41.82 e) $47.81
Business
1 answer:
lutik1710 [3]3 years ago
6 0

Answer:

Present value = $41.8160 rounded off to $41.82

Explanation:

Using the dividend discount model, we calculate the price of the stock today. It values the stock based on the present value of the expected future dividends from the stock. To calculate the present value of the next four dividends, we will use the following formula,

Present value = D1 / (1+r)  +  D2 / (1+r)^2  +  D3 / (1+r)^3  +  P4 / (1+r)^4

Where,

r is the required rate of return

Present value = 2.85 / (1+0.095)  +  3.95 / (1+0.095)^2  +    

5.15 / (1+0.095)^3  +  46 / (1+0.095)^4

Present value = $41.8160 rounded off to $41.82

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Alex doesn't care about where he lives, but he does care about what he eats. Alex spends all his money on restaurant meals at ei
Levart [38]

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5 0
3 years ago
Joe Santos owns the only pizza parlor in a small town that is also home to a McDonald's, a Taco Bell, and a Kentucky Fried Chick
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3 years ago
A store has 5 years remaining on its lease in a mall. Rent is $1, 900 per month, 60 payments remain, and the next payment is due
photoshop1234 [79]

Answer:

a) No, since the present value of new lease is more than old.

b) Detailed information about the explanation is shown below

c) At 39.80%  nominal WACC

Explanation:

a

           PV of old and new lease terms

            Old              Cash Flow                New              Cash Flow

             0                  0                               0                    0                    

           1-9               - 1900                         1-9                   0                    

       10-60              - 1900                         10-60              2700

           NPER              60                          NPER                60

           rate                  1%                          rate                   1%

           PV             ($85,414.57)                PV                   ($98,250.36)

                            PV ( 1%, 60, 1900)                 PV ( 1%,9,- PV(1%,51, 2700))

Should the new lease be accepted? <u> No, since the present value of new lease is more than old.</u>

b)   If the store owner decided to bargain with the mall's owner over the new lease payment, what new lease payment would make the store owner indifferent between the new and the old leases?

For this part pv of old lease should be equal to pv of new lease at t = 9

                85414.57 × (1.01)⁹                             93416.657

                Nper                                                  51

                Rate                                                   1%

                New lease amount                           ( $2,347.26)

                                                                           PMT (1%, 51,93416.66)

c)

        Period      Old Lease       New Lease      Change in lease

          0                  0                    0                     0  

         1-9            -1900                 0                    -1900  

        10-60        -1900                  -2700             800

        -1900    

        -1900    

        -1900    

        -1900    

        -1900    

        -1900    

        -1900    

        -1900    

        -1900    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800  

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800    

        800

        3.317%                  x 12   =   39.80%

IRR(Values 1:60)

The store owner is not sure of the 12% WACC - it could be higher or lower. At what nominal WACC would the store owner be indifferent between the two leases?

At 39.80%  nominal WACC

4 0
2 years ago
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