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
Juli2301 [7.4K]
3 years ago
9

Indigo Ink Supply paid a dividend of $5 last year on its common stock. It is expected that this dividend will grow at a rate of

8.5% for the next five years. After that, the company will settle into a slower growth pattern and plans to pay dividends that will grow at a rate of 3.8% per year. Investors require a return of 11.5% on the stock.
a. What will be the dividend paid out for the next six years?
b. What is the intrinsic value of Indigo’s stock?
Business
1 answer:
pychu [463]3 years ago
6 0

Answer:

a.

1st $5.43

2nd $5.89

3rd $6.39

4th $6.93

5th $7.52

6th $7.81

b.

$75.85

Explanation:

Dividend is the payment to the stockholders out of earning of the company. Companies have a dividend policy which determine the future dividend payments.

Dividend of each year can be calculated by using the growth rate as a discount in the compounding formula.

Dividend Payment

First year = $5 x ( 1 + 8.5% )^1 = $5.43

Second year = $5 x ( 1 + 8.5% )^2 = $5.89

Third year = $5 x ( 1 + 8.5% )^3 = $6.39

Fourth year = $5 x ( 1 + 8.5% )^4 = $6.93

Fifth year =$5 x ( 1 + 8.5% )^5 = $7.52

Sixth year = $7.52 x ( 1 + 3.8% )^1 = $7.81

b.

Intrinsic value of the stock is the present value of all the associated dividends

We need to calculate the present value of all the dividend payment.

First year = $5.43 x ( 1 + 11.5% )^-1 =  $4.87

Second year = $5.89 x ( 1 + 11.5% )^-2 = $4.74

Third year = $6.39 x ( 1 + 11.5% )^-3 = $4.61

Fourth year = $6.93 x ( 1 + 11.5% )^-4 = $4.48

Fifth year = $7.52 x ( 1 + 11.5% )^-5 = $4.36

After fifth year the dividend will be discounted as follow

PV of dividend after fifth year = [ $7.81 / (11.5% - 3.8%) ] x [ (1+11.5%)^-6 ] = $52.79

Intrinsic Value of Stock = Sum of PV of all dividends = $4.87 + $4.74 + $4.61 + $4.48 + $4.36 + $52.79 = $75.85

You might be interested in
How long should an electronic cover letter be?
Delicious77 [7]
<span>Approximately 150 words.</span>
3 0
3 years ago
Read 2 more answers
Do you feel that it is ethical and/or appropriate to utilize a "Bottom of the Pyramid" strategy where you make money off the wor
Rudik [331]

Answer:

Explanation:

The Bottom of the Pyramid strategies focuses on improving widespread poverty while providing profits and growth for multinational companies at the same time. With this definition, it is an ethical business model because it the companies are profiting but at the same time those at the bottom of the pyramid are benefiting, usually from having jobs. It would be unethical if these companies were simply taking from the individuals at the bottom of the pyramid.

3 0
3 years ago
Which of the following describe some of the trade-offs faced by a family deciding whether to buy a new car? Check all that apply
GaryK [48]

Answer:

The correct answer is letter "A" and "C": An increase in the family's car payment means the family will be unable to afford a vacation; A newer model offers better protection and functions but is more expensive than an older model.

Explanation:

Trade-offs are the result of comparing what must be acquired with what should be given up to satisfy most of a need. While selecting a new vehicle, a family must consider its capacity, size, and price. Besides, they will have to evaluate all the could be left behind for incurring such expenses like buying a new piece of furniture of use of most members of the family, remodeling part of the house or going on a family vacation.

3 0
3 years ago
Consider the following data for a closed economy:
notsponge [240]

Answer: The answer is given below

Explanation:

a. . Private saving

Private saving=Y+TR-C-T

= $11t + $1t - $8t - $3t

= $12 trillion - $11 trillion

= $1 trillion

b. Public saving

Public Saving= T-G-TR

Since G is not given, we can use:

I = public saving + private saving

$2t = public savings + $1t

Public saving= $2 trillion - $1 trillion

Public savings = $1 trillion

c. Goverment purchases

Since public savings = T - G - TR

$1t = $3t - G - $1t

G = $3t - $1t - $1t

G = $3 trillion - $2 trillion

G = $1 trillion

d. The goverment budget deficit or budget surplus.

There is a budget surplus of $1 trillion which has been calculated in the public savings.

4 0
3 years ago
What unique things would separate you from other applicants applying for this money?
Sergio039 [100]
<span>The unique things that would separate me from other applicants applying for this job are the ff: (1) i do not care of the compensation but more on the learning i can gather at the end of the day; (2) it has always been my passion to the job; and (3) i want to share my skills and talents to the company as well.</span>
4 0
3 years ago
Read 2 more answers
Other questions:
  • Which of the following costs is often important in decision making, but is omitted from conventional accounting records? A. Fixe
    6·1 answer
  • Stephanie, Inc. sells its product for $40. The variable costs are $18 per unit. Fixed costs are $16,000. The company is consider
    5·1 answer
  • Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives.
    7·1 answer
  • Excerpt from Areojet Corporation records for month of February: Per Unit Per Month Selling price $ 200,000 Direct materials used
    12·1 answer
  • Juarez Builders incurred $285,000 of labor costs for construction jobs completed during the month of August, of which $212,000 w
    11·2 answers
  • If a firm enjoys economies of scale up to a certain output​ level, and cost then increases proportionally with​ output, what can
    7·1 answer
  • The balanced scorecard is a unique system of performance measures in that it: (Check all that apply.) Multiple select question.
    15·1 answer
  • What are the best and worst parts of working in international business?
    7·1 answer
  • What is a wrong reason for wanting to start your own business?
    8·1 answer
  • Which of the following are the characteristics of a competitive market? (Check all that apply.)
    11·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!