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s2008m [1.1K]
3 years ago
7

Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 24 percent for the next three years, with the growth

rate falling off to a constant 7 percent thereafter. If the required return is 11 percent, and the company just paid a dividend of $2.05, what is the current share price
Business
1 answer:
Licemer1 [7]3 years ago
3 0

Answer:

$84.18

Explanation:

The current share price can be determined using the two-stage dividend growth model.

In the two-stage dividend growth model, the first stage is characterised by high growth rate. In the second stage, the high growth rate falls to a steady or normal growth rate

dividend in Y1 = 2.05 x 1.24 = 2.54

dividend in Y2 = 2.05 x 1.24^2 = 3.15

dividend in Y3 = 2.05 x 1.24^3 = 3.91

Y3 = (3.91 X 1.07) / (0.11 - 0.07) = 104.59

Find the present value of these cash flows

(2.54 / 1.11) + (3.15 / 1.11²) + (3.91 / 1.11³) + (104.59/1.11³) = 84.18

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What amount needs to be invested today at 6% simple interest in order to have $4000 in 2 years?
garri49 [273]
Data:
A (amount) = ?
P (Principal) = $ 4000
r (rate) = 6% → 0.06
t (time) = 2 years

Formula:
A = P(1+r*t)

Solving:
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\boxed{\boxed{A = \$\:4480}}\end{array}}\qquad\quad\checkmark


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