2. Dividends and stock valuesThe following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 per share, and dividends are expected to grow at a constant rateof 4.50% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the dividends that a stock is supposed to pay in the future, but manypeople find it difficult to imagine adding up an infinite number of dividends.Calculate the present value (PV) of the dividend paid today (Do) and the discounted value of the dividends expected to be paid 10, 20, and 50 years from now(D 10, D20, D50). Assume that the stock's required return (rs) is 5.40%.Note: Carry and round the calculations to four decimal places.Time PeriodDividend's Expected Future ValueDividend's Expected Present ValueNowEnd of Year 10End of Year 20End of Year 50Using the blue curve (circle symbols), plot the future value of each of the expected future dividends for years 10, 20, and 50. The resulting curve will illustrate how the FV ofa particular dividend payment will increase depending on how far from today the dividend is expected to be received.Note: Round each of the discounted values of the dividends to the nearest tenth decimal place before plotting it on the graph. You can mouse over the points in the graph tosee their coordinates. Using the blue curve (circle symbols), plot the future value of each of the expected future dividends for years 10, 20, and 50. The resulting curve will illustrate how the FV ofa particular dividend payment will increase depending on how far from today the dividend is expected to be received.Note: Round each of the discounted values of the dividends to the nearest tenth decimal place before plotting it on the graph. You can mouse over the points in the graph tosee their coordinates.10.00Expected Dividends8.00FV of Dividends6.004.002.00PV of DividendsA102030405060YEARSDIVIDENDS ($)

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Description: 2. Dividends and stock valuesThe following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 per share, and dividends are expected to grow at a constant rateof 4.50% per year. The intrinsic value of a stoc

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Answered: Calculate the present value (PV) of the…

Business

Accounting

Calculate the present value (PV) of the dividend paid today (Do) and the discounted value of the dividends expected to be paid 10, 20, and 50 years from now

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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