A small company owns an oil well. Initially revenues and dividends are expected to grow while the oil well is being developed. It is then expected to slowly decline as it dries up until it shuts down. An annual dividend of $1.80 has just been paid. Dividends are expected to grow by 15% p.a. until t=6. Dividends are then expected to decline by 1.5% p.a. until t=25 when the well is expected to shut down. a. What is the dividend expected to be in 12 year’s time? b. What is the share price today if the shares are priced at 11.5% p.a.?
A small company owns an oil well. Initially revenues and dividends are expected to grow while the oil well is being developed. It is then expected to slowly decline as it dries up until it shuts down. An annual dividend of $1.80 has just been paid. Dividends are expected to grow by 15% p.a. until t=6. Dividends are then expected to decline by 1.5% p.a. until t=25 when the well is expected to shut down. a. What is the dividend expected to be in 12 year’s time? b. What is the share price today if the shares are priced at 11.5% p.a.?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A small company owns an oil well. Initially revenues and dividends are expected to grow while the oil
well is being developed. It is then expected to slowly decline as it dries up until it shuts down.
An annual dividend of $1.80 has just been paid. Dividends are expected to grow by 15% p.a. until t=6.
Dividends are then expected to decline by 1.5% p.a. until t=25 when the well is expected to shut down.
a. What is the dividend expected to be in 12 year’s time?
b. What is the share price today if the shares are priced at 11.5% p.a.?
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