Buggy a. If r= 15% and DIV₁ = $8, what is the value of a share? Note: Do not round intermediate calculations. Round your answer to 2 decimal pla Value of a share b. What price do you forecast for the stock next year? Note: Do not round intermediate calculations. Round your answer to 2 decimal pla Stock price c. What is the expected rate of return on the stock?
Buggy a. If r= 15% and DIV₁ = $8, what is the value of a share? Note: Do not round intermediate calculations. Round your answer to 2 decimal pla Value of a share b. What price do you forecast for the stock next year? Note: Do not round intermediate calculations. Round your answer to 2 decimal pla Stock price c. What is the expected rate of return on the stock?
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
Related questions
Question
![**Horse and Buggy Incorporated Analysis**
Horse and Buggy Incorporated is in a declining industry. Sales, earnings, and dividends are all shrinking at a rate of 10% per year.
**a. Share Value Calculation**
*Given:*
\( r = 15\% \)
\( DIV_1 = \$8 \)
*Question: What is the value of a share?*
*Instruction:* Do not round intermediate calculations. Round your answer to 2 decimal places.
- **Input Box:** Value of a share [ ]
---
**b. Stock Price Forecast**
*Question: What price do you forecast for the stock next year?*
*Instruction:* Do not round intermediate calculations. Round your answer to 2 decimal places.
- **Input Box:** Stock price [ ]
---
**c. Expected Rate of Return Calculation**
*Question: What is the expected rate of return on the stock?*
*Instruction:* Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
- **Input Box:** Expected rate of return [ ] %](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0523ccba-327e-4d5d-b4b1-70c596ee337c%2F9b0fd93d-65b2-477c-b905-e4b00192502d%2Fldzwbs_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Horse and Buggy Incorporated Analysis**
Horse and Buggy Incorporated is in a declining industry. Sales, earnings, and dividends are all shrinking at a rate of 10% per year.
**a. Share Value Calculation**
*Given:*
\( r = 15\% \)
\( DIV_1 = \$8 \)
*Question: What is the value of a share?*
*Instruction:* Do not round intermediate calculations. Round your answer to 2 decimal places.
- **Input Box:** Value of a share [ ]
---
**b. Stock Price Forecast**
*Question: What price do you forecast for the stock next year?*
*Instruction:* Do not round intermediate calculations. Round your answer to 2 decimal places.
- **Input Box:** Stock price [ ]
---
**c. Expected Rate of Return Calculation**
*Question: What is the expected rate of return on the stock?*
*Instruction:* Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
- **Input Box:** Expected rate of return [ ] %
Expert Solution
Step 1: Define=DDM
DDM is the dividend discount model that is used for calculating the stock price based on the present value of the dividend.
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