Stephanie requires a return of at least 9% on her stock investments. Think-Local Inc. paid $0.75 per share as dividend last year (t = 0). The company expects that it will take next 2 years (till t = 2) to recover from the pandemic’s effects, during which time, its dividend will grow at a rate of 1.5% per annum. From year 3 onwards, the dividend growth rate is expected to settle at 2% per year indefinitely. What is the price that Stephanie will pay for stock at Think-Local Inc.? Please break down all the steps

Stephanie requires a return of at least 9% on her stock investments. Think-Local Inc. paid $0.75 per share as dividend last year (t = 0). The company expects that it will take next 2 years (till t = 2) to recover from the pandemic’s effects, during which time, its dividend will grow at a rate of 1.5% per annum. From year 3 onwards, the dividend growth rate is expected to settle at 2% per year indefinitely. What is the price that Stephanie will pay for stock at Think-Local Inc.? Please break down all the steps

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Nikul
Consider a firm that distributes the entire annual earnings to its shareholders through dividends once a year. The firm’s dividends are expected to grow at a rate of 8% per year for the next 5 years until the end of 2035. From 2036 on, the firm’s growth rate is expected to be 4% per year forever. Assume that investors command 12% return on the investments comparable to the firm’s stock. In addition, the firm has just paid an annual dividend of $10 per share at the end of 2030. Required: If you were considering buying the firm’s shares on the first day of 2031, at what price would you buy the shares?
Jia's Fashions recently paid a R2 annual dividend. The company is projecting that its dividends will grow by 20 percent next year, 12 percent annually for the two years after that, and then at 6 percent annually thereafter. Based on this information, how much should Jia's Fashions common stock sell for today if her required return is 10.5%? Which answer is correct? A. R54.90 B. R60.80 C. R66.60 D. R69.30
Investors require a 10 percent per year return on the stock of the Rabiya’s Corporation, which anticipates a non-constant growth pattern for dividends. The company paid a $2.50 per share dividend. The dividend is expected to grow by 15 percent per year until the end of year 4 (i.e., for the next 3 years) and 7 percent thereafter. (d) Find the present value of all future dividends beginning with the fifth year’s dividend. The present value you find will be at the end of the fourth year. Use the formula P4= D5/(r-g). (e) Discount back the value found in part (d)for 4 years at 10 percent. f) Determine the value of the stock Po.
Laurel Enterprises expects earnings next year of $4.29 per share and has a 50% retention rate, which it plans to keep constant. Its equity cost of capital is 11%, which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of 5.5% per year. If its next dividend is due in one year, what do you estimate the firm's current stock price to be? The current stock price will be $ (Round to the nearest cent.)
Goodwin Technologies, a relatively young company, has been wildly successful but has yet to pay a dividend. An analyst forecasts that Goodwin is likely to pay its first dividend three years from now. She expects Goodwin to pay a $3.75000 dividend at that time (D, = $3.75000) and believes that the dividend will grow by 19.50000% for the following two years (D and D₂). However, after the fifth year, she expects Goodwin's dividend to grow at a constant rate of 3.96000% per year. Goodwin's required return is 13.20000%. Fill in the following chart to determine Goodwin's horizon value at the horizon date (when constant growth begins) and the current intrinsic value. To increase the accuracy of your calculations, do not round your intermediate calculations, but round all final answers to two decimal places. Term Horizon value Current intrinsic value Value If investors expect a total return of 14.20%, what will be Goodwin's expected dividend and capital gains yield in two years-that is, the…
Orange Inc's next two annual dividends be $6.05 and $5.55, with the first occurring exactly one year from today. After the second dividend, future dividends will grow at a constant rate of 7% per year indefinitely. What is a fair price for Orange stock if investors require a return of 14.3%? Round your answer to the nearest penny.
Yam-Hash Corporation is expanding rapidly, and it does not pay any dividends because it currently needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of registration# coming 3 years from today. The dividend should grow rapidly at a rate of 50% per year during Years 4 and 5. After Year 5, the company should grow at a constant rate of 8% per year. If the required return on the stock is 15%, what is the value of the stock today?
Orkazana Corporation is experiencing rapid growth. Dividends are expected to grow at 30 percent per year during the next three years, 20 percent over the following year, and then 5 percent per year indefinitely. The required return on this stock is 12 percent, and the stock currently sells for $80 per share. What is the projected dividend for the coming year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Projected dividend
Tesla Inc (TSLA) has been growing at a rate of 33% per year in recent years. This same supernormal growth rate is expected to last for another 4 years, during which it will not pay dividend. It will start paying a dividend of $5 a share in 5th year. After this, earnings and dividends are expected to grow at a 4 percent annual rate indefinitely. Investors currently require a rate of return of 9 percent. What should be the current market price per share of its stock? O 67.29 O 70.84 77.92 O 63.75 O 60.21 12
News Corp is expected to pay a dividend of $0.8 in one year. The dividend is expected to grow at 12% in the following 3 years and then at a constant rate of 4% per annum indefinitely. If the required rate of return is 12%, what is the price of the company's share today? Please illustrate your answer using a timeline.
In the case of Sheldon, Inc., they will pay constant dividends at the end of the next two years. After that, the dividend is expected to increase by a steady 5 percent annually indefinitely. With the current share price standing at $50, what will be the dividend payment in the next year if the required rate of return is 12 percent?