Choose option a,b,c,d, for the following: Question 8 - You own 1000 shares of Hefty Inc. Hefty follows a constant dividend policy, implying that it will pay the same dividend per share each year indefinitely. The dividend per share is $2.30 per year. You intend to invest in Hefty’s stock and hold it for 2 years. At the same time, you would like to receive at least $17 per share as dividend in the second year. You wish to achieve your goal by following the homemade dividends strategy in a world without taxes. Investors require a return of 15% on Hefty’s stock. Based on this information, indicate which of the following information is true. a. You will sell all your shares at the end of Year 2. b. You will receive $1,533 from Hefty in Year 1. c. You will sell shares worth $14,700 at the end of Year 2. d. You will sell your shares at the end of Year 2 at a price of $13.55 per share.
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Choose option a,b,c,d, for the following:
Question 8 -
You own 1000 shares of Hefty Inc. Hefty follows a constant dividend policy, implying that it will pay the same dividend per share each year indefinitely. The dividend per share is $2.30 per year. You intend to invest in Hefty’s stock and hold it for 2 years. At the same time, you would like to receive at least $17 per share as dividend in the second year. You wish to achieve your goal by following the homemade dividends strategy in a world without taxes. Investors require a return of 15% on Hefty’s stock. Based on this information, indicate which of the following information is true.
a. You will sell all your shares at the end of Year 2.
b. You will receive $1,533 from Hefty in Year 1.
c. You will sell shares worth $14,700 at the end of Year 2.
d. You will sell your shares at the end of Year 2 at a price of $13.55 per share.
Step by step
Solved in 3 steps with 2 images
