Giant Eagle Markets is considering the following two dividend policies for the next five years. Year Policy #1 Policy #2 1 4.00 6.90 4.00 2.40 4.00 5.00 4. 4.00 1.70 3.
Giant Eagle Markets is considering the following two dividend policies for the next five years. Year Policy #1 Policy #2 1 4.00 6.90 4.00 2.40 4.00 5.00 4. 4.00 1.70 3.
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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I needed help finding what the formula is to find the PV Factor.
Transcribed Image Text:Giant Eagle Markets is considering the following two dividend policies for the next five years.
Year
Policy #1
Policy #2
1
4.00
6.90
2
4.00
2.40
4.00
5.00
4
4.00
1.70
4.00
4.00
Required:
A. What is the total of the dividends per share that the stockholders will receive over the
full five year period?
B. If investors see no difference in the risk between the two policies, and therefore apply a
9.4% discount rate to both policies, what is the present value of each dividend stream?
C. Suppose investors see Policy #2 as the riskier of the two, and they therefore apply a
9.4% discount rate to Policy #1 and a 12% discount rate to Policy #2. Under this scenario,
what is the present value of each dividend stream?
D. What conclusions can be drawn from this exercise?
A
Policy #1
Policy #2
Year
1.
4.00
6.90
2
4.00
2.40
3
4.00
5.00
4
4.00
1.70
4.00
4.00
Total over five years
20.00
20.00
В
Policy #1
9.40%
Year
Cash Flow
PV Factor
Present value
4.00
0.9140
3.66
2
4.00
0.8355
3.34
3
4.00
0.7637
3.05
4
4.00
0.6981
2.79
5
4.00
0.6381
2.55
Present value
15.39
Policy #2
9.40%
Year
Cash Flow
PV Factor
Present value
1.
6.90
0.9140
6.31
2
2.40
0.8355
2.01
3
5.00
0.7637
3.82
4
1.70
0.6981
1.19
5
4.00
0.6381
2.55
Present value
15.88
Policy #1
9.40%
Year
Cash Flow
PV Factor
Present value
1.
4.00
0.9141
3.66
4.00
0.8355
3.34
3
4.00
0.7637
3.05
4
4.00
0.6981
2.79
4.00
0.6981
2.55
Present value
15.39
Policy #2
12.00%
Year
Cash Flow
PV Factor
Present value
1.
6.90
0.8929
6.16
2.40
0.7972
1.91
3
5.00
0.7118
3.56
4
1.70
0.6355
1.08
5
4.00
0.5674
2.27
Present value
14.98
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