Wheat Inc. has just paid its annual dividend of $2.10. The company is expected to pay the same $2.10 dividend for years 1 and 2. After that dividends is expected to grow at an annual rate of 18% for the following 2 years, and at 12% for 3 years after that, then, starting in year 8 dividend is expected to grow at a constant rate of 5% indefinitely. The required rate of return on Wheat Inc. stock is 14%. a. What is the expected dividend in year 5? b. What is the expected dividend in year 7? c. What is the expected value for the stock in year 7?

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
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Wheat Inc. has just paid its annual dividend of $2.10. The company is
expected to pay the same $2.10 dividend for years 1 and 2. After that
dividends is expected to grow at an annual rate of 18% for the following 2
years, and at 12% for 3 years after that, then, starting in year 8 dividend is
expected to grow at a constant rate of 5% indefinitely. The required rate of
return on Wheat Inc. stock is 14%.
a. What is the expected dividend in year 5?
b. What is the expected dividend in year 7?
c. What is the expected value for the stock in year 7?
d. What is the current value of one share of Wheat Inc. stocks today?
e. What is the expected price in year 15?
Calculate the expected stock price today if the dividend is expected to cease
after 15 years. (Year 15 will be the last divided)
Transcribed Image Text:Wheat Inc. has just paid its annual dividend of $2.10. The company is expected to pay the same $2.10 dividend for years 1 and 2. After that dividends is expected to grow at an annual rate of 18% for the following 2 years, and at 12% for 3 years after that, then, starting in year 8 dividend is expected to grow at a constant rate of 5% indefinitely. The required rate of return on Wheat Inc. stock is 14%. a. What is the expected dividend in year 5? b. What is the expected dividend in year 7? c. What is the expected value for the stock in year 7? d. What is the current value of one share of Wheat Inc. stocks today? e. What is the expected price in year 15? Calculate the expected stock price today if the dividend is expected to cease after 15 years. (Year 15 will be the last divided)
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