Baghiben Company A will be reducing its annual dividend by 4.0% a year for the next 2 years.After that, it will pay a dividend of $.95 a share, growing each year thereafter by3.0%. This dividend stream with 3.0% growth per year is expected to last for 50years (until the end of year 52), at which point each share can be exchanged for$26.00. The company recently paid a dividend of $1.33 per share. What is this stockworth given a 8.0% required rate of return?The stock is worth $17.48.The stock is worth $18.02.The stock is worth $16.63.The stock is worth $23.75.

The correct answer is:The stock is worth $17.48. Here are the steps to get the answer:1. Dividends…

Answered: Company A will be reducing its annual…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 4P

See similar textbooks

Similar questions

The Merriweather Co. just announced that it will pay a dividend next year of $1.60. The company will then increase its dividend by 10 percent per year for two years after which it will maintain a constant 2 percent dividend growth rate. What is one share worth today at a required rate of return of 14 percent?
SirMag Complex just announced that they are increasing the annual dividend to $2.75 and establishing a policy whereby the dividend will increase by 3 percent annually thereafter. How much will one share of this stock be worth six years from now if the required rate of return is 14.5 percent?
Stewart Industries expects to pay a $3.00 per share dividend on its common stock at the end of the year (i.e. D1 = $3.00). The dividend is expected to grow 25 percent a year until t = 3, after which time the dividend is expected to grow at a constant rate of 5 percent a year (i.e. D3 = $4.6875 and D4 = $4.9219). The stock’s beta is 1.2, the risk-free rate of interest is 6 percent, and the market risk premium (i.e., rm –rrf) is 5 percent. What is the company’s current stock price?
Gee Gee is going to pay an annual dividend of $2.05 a share per year. This year, the company paid a dividend of $2 a share. The company adheres to a constant rate of growth divi policy. What will one share of this common st be worth six years from now if the applicable discount rate is 11.2 percent?
Cullumber Mechanical Inc's first dividend of $1.60 per share is expected to be paid six years from today. From then on, dividends will grow by 10 percent per year for five years. After five years, the growth rate will slow to 5 percent per year in perpetuity. Assume that Cullumber's required rate of return is 13 percent. What is the price of a share of Cullumber Mechanical today? (Round present value factor calculations to 5 decimal places, e.g. 1.15612. Round other intermediate calculations to 3 decimal places, e.g. 1.156 and final answer to 2 decimal places, e.g.115.61.) Price of the stock $
9. CEPS Group announced today that it will begin paying annual dividends next year. The firstdividend will be OMR 0.65 a share. The following dividends will be OMR 0.72, OMR 0.85,OMR 0.89, and OMR 0.95 a share annually for the following 4 years, respectively. After that,dividends are projected to increase by 4 percent per year. How much are you willing to pay tobuy one share of this stock today if your desired rate of return is 11.5 percent? notes: show all calculation
Poulter Corporation will pay a dividend of $4.75 per share next year. The company pledges to increase its dividend by 7.5 percent per year, indefinitely. If you require a return of 9 percent on your investment, how much will you pay for the company’s stock today?
Suppose the Pale Hose Corp. is expected to pay a dividend next year of OMR2.25 per share. Both sales and profits for Pale Hose are expected to grow at a rate of 20% for the following 2 years and then at 5% per year thereafter indefinitely. Dividend growth is expected to match sales growth. If the required return is 15%, what is the value of a share of Pale Hose?
Larchmont Wholesalers just announced it is raising its annual dividend to $1.18 next year and has committed to increase its dividend by 3.25 percent annually in the future. Based on this information, how much will one share of this stock be worth 8 years from now if the required rate of return is 9.5 percent?
Northern Gas is expected to pay a $2.80 annual dividend on its common stock next year. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for $26.91 a share. What is the market rate of return?
Five Star Corporation will pay a dividend of $4.15 per share next year. The company pledges to increase its dividend by 6.25 percent per year, indefinitely. If you require a return of 9 percent on your investment, how much will you pay for the company’s stock today?
ABC Inc. just announced it is increasing its annual dividend to $2.00 next year and establishing a policy whereby the dividend will increase by 3 percent annually thereafter.(1) What will the dividend be 5 years from now?(2) How much will one share of this stock be worth 10 years from now if the required rate of return is 10 percent?

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS