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adelina 88 [10]
2 years ago
15

Cellular Talk is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 25% a ye

ar for the next three years and then decreasing the growth rate to 6% per year. The company just paid its annual dividend in the amount of $0.80 per share. What is the current value of one share of this stock if the required rate of return is 17%
Business
1 answer:
kondaur [170]2 years ago
7 0

Answer:

$12.14

Explanation:

The computation of the current value of one share of the stock is shown below:

D2 = (1 × 1.25) = $1.25

D3 = (1.25 × 1.25) = $1.5625

Now

Value after year 3 is

= (D3 × Growth rate) ÷ (Required return - Growth rate)

= (($1.5625 × 1.06) ÷ [0.17 - 0.06)]

= $15.05681818

Now

Current value is

= Future dividends × Present value of discounting factor(17%,time period)

= $1 ÷ 1.17 + $1.25 ÷ 1.17^2 + $1.5625 ÷ 1.17^3 + $15.05681818/1.17^3

= $12.14

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It illustrates that the classical model of the price level best applies to economies with persistently high inflation.

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When a very low inflation rate has been constant in an economy, and the money supply increases suddenly, in the short run that change will not immediately increase the inflation rate, but instead it will increase real output.

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kolbaska11 [484]

Jason, your client, is developing a subdivision of 140 houses. He may place deed restrictions on as many as 140 (100%) properties.

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