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
Hunter-Best [27]
2 years ago
12

Tin-Tin Waste Management, Inc., is growing rapidly. Dividends are expected to grow at rates of 30 percent, 35 percent, 25 percen

t, and 18 percent over the next four years. Thereafter, management expects dividends to grow at a constant rate of 7 percent. The stock is currently selling at $47.85, and the required rate of return is 16 percent. Compute the dividend for the current year (D0).
Business
1 answer:
scoundrel [369]2 years ago
5 0

Answer:

The dividend for the current year (D0) is $2.15.

Explanation:

This can be calculated as follows:

Current dividend = D0

Next dividend = (1 + relevant growth rate) * Current dividend ........... (1)

Based on equation (1), we have:

D1 = (1 + 0.30) * D0 = 1.30D0

D2 = (1 + 0.35) * D1 = 1.35 * 1.30D0 = (1.35 * 1.30)D0 = 1.755D0

D3 = (1 + 0.25) * D2 = 1.25 * 1.755D0 = (1.25 * 1.755)D0 = 2.19375D0

D4 = (1 + 0.18) * D3 = 1.18 * 2.19375D0 = (1.18 * 2.19375)D0 = 2.588625D0

D5 = (1 + 0.07) * D4 = 1.07 * 2.588625D0 = (1.07 * 2.588625)D0 = 2.76982875D0

Using Gordon Growth stable formula, we have price in year 4 (P4) as follows:

P4 = D5/(required rate of return - Perpetual dividend growth rate) ........ (2)

Substituting all the relevant values to equation (2), we have:

P4 = 2.76982875D0/(0.16 - 0.07)

P4 =2.76982875D0/0.09

P4 = 30.775875D0

Since the market price is the sum of all the present values of dividends from year 1 to 4 and P4, we have:

$47.85 = (D1 / (1 + required rate of return)^1) + (D2 / (1 + required rate of return)^2) + (D3 / (1 + required rate of return)^3) + (D4 / (1 + required rate of return)^4) + (P4 / (1 + required rate of return)^4) ...........(3)

Substituting all the relevant values to equation (3), we have:

$47.85 = (1.30D0 / 1.16^1) + (1.755D0 / 1.16^2) + (2.19375D0 / 1.16^3) + (2.588625D0 / 1.16^4) + (30.775875D0 / 1.16^4)

$47.85 = [(1.3 / 1.16^1) + (1.755 / 1.16^2) + (2.19375 / 1.16^3) + (2.588625 / 1.16^4) + (30.775875 / 1.16^4)]D0

$47.85 = 22.2572996535323D0

D0 = $47.85 / 22.2572996535323

D0 = $2.15

Therefore, the dividend for the current year (D0) is $2.15.

You might be interested in
Suppose, you own a screen-printing business and you enter into a contract with a local school to print 50 orange t-shirts with t
LUCKY_DIMON [66]

Answer: $500

Explanation:

Based on the scenario in the question, there's a breach of contract as the shirts aren't delivered and there are 50 t-shirts which cost $10 each that no one law is willing to buy because it has a school name and their mascot on the front.

Here, the maker of the shirt can sue for damages and since there's no resale, the amount to be sued for damages will be the price of each shirt multiplied by the total number of shirt. This will be:

= $10 × 50

= $500

6 0
2 years ago
The price and quantity determined in a market when the supply equals the demand, the market is in the state of
astra-53 [7]

Answer:

Market equilibrium

Explanation:

The market equilibrium is the price at which the quantity demanded and the quantity supplied are intersected to each other

The intersection could be done by supply and demand curves

Moreover, there is a positive relationship between the price and quantity supplied while for quantity demanded it has an inverse relationship between the price and quantity demanded

6 0
3 years ago
A monopolist:
Llana [10]

Answer:

The answer is C. can earn profits or incur losses in the short run.

Explanation:

A monopolist maximizes profit or minimizes losses by producing that quantity that corresponds to when marginal revenue = marginal cost. However, if the average total cost is above the market price, then the firm will incur losses, equal to the average total cost minus the market price multiplied by the quantity produced

5 0
3 years ago
A decrease in demand for cameras would likely be caused by
nignag [31]
A decrease in demand for cameras would likely be caused by increased abilities in cell phones for filming
3 0
3 years ago
Some checking accounts require a minimum amount of money in the account or they charge point monthly fees?
QveST [7]

Answer:

True

Explanation:

4 0
2 years ago
Other questions:
  • Lakeside Inc. produces a product that currently sells for $57.60 per unit. Current production costs per unit include direct mate
    7·1 answer
  • You are considering building a new deck on your​ home, what factors should you consider when deciding whether to borrow the mone
    13·2 answers
  • The records for Sandhill Inc. showed the following for 2020: Jan. 1 Dec. 31 Accrued expenses $1,200 $2,100 Prepaid expenses 630
    15·1 answer
  • Which of the following is an example of party retailing?
    8·1 answer
  • California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2021. In preparing its insuran
    11·1 answer
  • Which decision-making models best describe how decision-making takes place in the research and development laboratory of a major
    7·1 answer
  • Clarence is a sole proprietor who started his business on July 29, 2017. He has not elected any particular tax year. Generally,
    6·1 answer
  • The following T-accounts record the operations of Oriole Co.: Assume all raw materials are direct materials. Raw Materials Begin
    14·1 answer
  • The West Division of Cecchetti Corporation had average operating assets of $240,000 and net operating income of $42,200 in Augus
    10·2 answers
  • Compared to the perfectly competitive firm, the monopolist faces a demand curve that is ___________________ elastic because ther
    9·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!