Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 32, Problem 3PS
Summary Introduction
To determine: The government’s motive towards privatization.
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An investor buys 100 shares of a $40 stock that pays an annual cash dividend of $2 a share (a 5 percent dividend yield) and signs up for the DRIP.
a. If neither the dividend nor the price changes, how many shares will the investor have at the end of 10 years? How much will the position in the stock be worth?
Answer:
5.000 shares purchased in year 1
5.250 shares purchased in year 2
6.078 shares purchased in year 5
62.889 total shares purchased
b. If the price of the stock rises by 6 percent annually but the dividend remains at $2 a share, how many shares are purchased each year for the next 10 years? How much is the total position worth at the end of 10 years?
Answer:
4.717 shares purchased in year 1
4.592 shares in year 3
3.898 shares in year 10
Value of position: $10,280
c. If the price of the stock rises by 6 percent annually but the dividend rises by only 3 percent annually, how many shares are purchased each year for the next 10 years? How much is the total position worth at the…
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Chapter 32 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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