<span>Answer: Just get the FV of each year's cash flow.
At T1 - 5,000, N 2, R 7%, Compute FV at T3 - 5,724.50
At T2 - 5,500, N 1, R 7%, Compute FV at T3 - 5,885.00
At T3 - 6,050, N 0, FV at T3 - 6,050
Total at T3 - 17,659.50</span>
Complete Question:
BenchMark, Inc., just paid a dividend of $3.45 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a return of 13 percent on the stock for the first three years, a return of 11 percent for the next three years, and then a return of 9 percent thereafter. What is the current share price for the stock.
Answer:
BenchMark, Inc.
The current share price for the stock is:
$43.13
Explanation:
a) Data and Calculations:
Dividend per share = $3.45
Growth rate = 5%
Investors' required rate of return = 13%
Stock value = Dividend per share / (Required Rate of Return – Dividend Growth Rate)
= $3.45/(0.13 - 0.05)
= $43.13
b) We can calculate BenchMark's current share price, by dividing the dividend per share by the investors' required rate of return after subtracting the growth rate from the required rate of return.
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Answer:
$700
Explanation:
If a bond is issued at a lower price than the face value of the bond, then the bond is issued on the discount. This discount is amortized over the bond's life. This amortization will be expensed as Interest Expense.
Discount = Face value - Issuance price = $15,000 - $14,700 = $300
Bond's Life = 6 years
Amortization of discount = $300 / 6 = $50 annually = $25 semiannually
Coupon Payment = Face Value x coupon Rate = $15,000 x 9% = $1.350 annually = $675 semiannually
Interest Expense Includes both the coupon payment and discount amortization for the period.
Interest Expense = $675 + $25 = $700
