The expected dividends for year 1, 2 and 3.

Question

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Answer 1

Question

Chapter 7, Problem 12QP

a.

Summary Introduction

To determine: The expected dividends for year 1, 2 and 3.

a.

Expert Solution

Answer to Problem 12QP

The expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.

Explanation of Solution

Determine the expected dividends for year 1, 2 and 3

Dividends(D1)=[Current Dividends(D0)×(1+Growth Rate(g))]=[$1×(1+4%)]=$1.04Dividends(D2)=[Current Dividends(D1)×(1+Growth Rate(g))]=[$1.04×(1+4%)]=$1.0816 or $1.08Dividends(D3)=[Current Dividends(D2)×(1+Growth Rate(g))]=[$1.0816×(1+4%)]=$1.124864 or $1.12

Therefore, the expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.

b.

Summary Introduction

To determine: The selling price of stock.

b.

Expert Solution

Answer to Problem 12QP

The selling price of stockis $13.

Explanation of Solution

Determine the selling price of stock

Value of Stock(P0)=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$1.0412%−4%]=$13

Therefore, the selling price of stockis $13.

c.

Summary Introduction

To determine: The projected stock price three years from now.

c.

Expert Solution

Answer to Problem 12QP

The projected stock price three years from nowis $14.62.

Explanation of Solution

Determine the projected stock price three years from now

Expected Stock Price(P0)=[Current Dividends(D3)×(1+Growth Rate(g))Required Return(r)−Growth Rate(g)]=[$1.124864×(1+4%)12%−4%]=$14.623232 or $14.62

Therefore, the projected stock price three years from nowis $14.62.

d.

Summary Introduction

To determine: The projectedcash flows for years 1, 2 and 3.

d.

Expert Solution

Answer to Problem 12QP

The projectedcash flows for years 1 are $1.04, year 2 are $1.08 and year 3 are $15.75.

Explanation of Solution

Determine the projected cash flows for years 1, 2 and 3

The cash flows for year 1 and 2 will remain same as $1.04 and $1.08 respectively since the purchase happens only in year 3. The cash flow for year 3 is calculated below,

Cash FlowYear 3=[Current Dividends(D3)+Expected Stock Price(P0)]=[$1.124864+$14.623232]=$15.748096 or $15.75

Therefore, the cash flows for year 3 is $15.75.

e.

Summary Introduction

To determine: The present value of stream of payments.

e.

Expert Solution

Answer to Problem 12QP

The present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.

Explanation of Solution

Determine the cash flows for year 1, 2 and 3

Excel Spreadsheet:

FUNDAMENTALS OF CORPORATE FINANCE, Chapter 7, Problem 12QP , additional homework tip 1

Excel Workings:

FUNDAMENTALS OF CORPORATE FINANCE, Chapter 7, Problem 12QP , additional homework tip 2

Therefore, the present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.

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Answer 2

Question

Chapter 7, Problem 12QP

a.

Summary Introduction

To determine: The expected dividends for year 1, 2 and 3.

a.

Expert Solution

Answer to Problem 12QP

The expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.

Explanation of Solution

Determine the expected dividends for year 1, 2 and 3

Dividends(D1)=[Current Dividends(D0)×(1+Growth Rate(g))]=[$1×(1+4%)]=$1.04Dividends(D2)=[Current Dividends(D1)×(1+Growth Rate(g))]=[$1.04×(1+4%)]=$1.0816 or $1.08Dividends(D3)=[Current Dividends(D2)×(1+Growth Rate(g))]=[$1.0816×(1+4%)]=$1.124864 or $1.12

Therefore, the expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.

b.

Summary Introduction

To determine: The selling price of stock.

b.

Expert Solution

Answer to Problem 12QP

The selling price of stockis $13.

Explanation of Solution

Determine the selling price of stock

Value of Stock(P0)=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$1.0412%−4%]=$13

Therefore, the selling price of stockis $13.

c.

Summary Introduction

To determine: The projected stock price three years from now.

c.

Expert Solution

Answer to Problem 12QP

The projected stock price three years from nowis $14.62.

Explanation of Solution

Determine the projected stock price three years from now

Expected Stock Price(P0)=[Current Dividends(D3)×(1+Growth Rate(g))Required Return(r)−Growth Rate(g)]=[$1.124864×(1+4%)12%−4%]=$14.623232 or $14.62

Therefore, the projected stock price three years from nowis $14.62.

d.

Summary Introduction

To determine: The projectedcash flows for years 1, 2 and 3.

d.

Expert Solution

Answer to Problem 12QP

The projectedcash flows for years 1 are $1.04, year 2 are $1.08 and year 3 are $15.75.

Explanation of Solution

Determine the projected cash flows for years 1, 2 and 3

The cash flows for year 1 and 2 will remain same as $1.04 and $1.08 respectively since the purchase happens only in year 3. The cash flow for year 3 is calculated below,

Cash FlowYear 3=[Current Dividends(D3)+Expected Stock Price(P0)]=[$1.124864+$14.623232]=$15.748096 or $15.75

Therefore, the cash flows for year 3 is $15.75.

e.

Summary Introduction

To determine: The present value of stream of payments.

e.

Expert Solution

Answer to Problem 12QP

The present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.

Explanation of Solution

Determine the cash flows for year 1, 2 and 3

Excel Spreadsheet:

FUNDAMENTALS OF CORPORATE FINANCE, Chapter 7, Problem 12QP , additional homework tip 1

Excel Workings:

FUNDAMENTALS OF CORPORATE FINANCE, Chapter 7, Problem 12QP , additional homework tip 2

Therefore, the present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.

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Answer 3

Question

Chapter 7, Problem 12QP

a.

Summary Introduction

To determine: The expected dividends for year 1, 2 and 3.

a.

Expert Solution

Answer to Problem 12QP

The expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.

Explanation of Solution

Determine the expected dividends for year 1, 2 and 3

Dividends(D1)=[Current Dividends(D0)×(1+Growth Rate(g))]=[$1×(1+4%)]=$1.04Dividends(D2)=[Current Dividends(D1)×(1+Growth Rate(g))]=[$1.04×(1+4%)]=$1.0816 or $1.08Dividends(D3)=[Current Dividends(D2)×(1+Growth Rate(g))]=[$1.0816×(1+4%)]=$1.124864 or $1.12

Therefore, the expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.

b.

Summary Introduction

To determine: The selling price of stock.

b.

Expert Solution

Answer to Problem 12QP

The selling price of stockis $13.

Explanation of Solution

Determine the selling price of stock

Value of Stock(P0)=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$1.0412%−4%]=$13

Therefore, the selling price of stockis $13.

c.

Summary Introduction

To determine: The projected stock price three years from now.

c.

Expert Solution

Answer to Problem 12QP

The projected stock price three years from nowis $14.62.

Explanation of Solution

Determine the projected stock price three years from now

Expected Stock Price(P0)=[Current Dividends(D3)×(1+Growth Rate(g))Required Return(r)−Growth Rate(g)]=[$1.124864×(1+4%)12%−4%]=$14.623232 or $14.62

Therefore, the projected stock price three years from nowis $14.62.

d.

Summary Introduction

To determine: The projectedcash flows for years 1, 2 and 3.

d.

Expert Solution

Answer to Problem 12QP

The projectedcash flows for years 1 are $1.04, year 2 are $1.08 and year 3 are $15.75.

Explanation of Solution

Determine the projected cash flows for years 1, 2 and 3

The cash flows for year 1 and 2 will remain same as $1.04 and $1.08 respectively since the purchase happens only in year 3. The cash flow for year 3 is calculated below,

Cash FlowYear 3=[Current Dividends(D3)+Expected Stock Price(P0)]=[$1.124864+$14.623232]=$15.748096 or $15.75

Therefore, the cash flows for year 3 is $15.75.

e.

Summary Introduction

To determine: The present value of stream of payments.

e.

Expert Solution

Answer to Problem 12QP

The present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.

Explanation of Solution

Determine the cash flows for year 1, 2 and 3

Excel Spreadsheet:

FUNDAMENTALS OF CORPORATE FINANCE, Chapter 7, Problem 12QP , additional homework tip 1

Excel Workings:

FUNDAMENTALS OF CORPORATE FINANCE, Chapter 7, Problem 12QP , additional homework tip 2

Therefore, the present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.

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Answer 4

Question

Chapter 7, Problem 12QP

a.

Summary Introduction

To determine: The expected dividends for year 1, 2 and 3.

a.

Expert Solution

Answer to Problem 12QP

The expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.

Explanation of Solution

Determine the expected dividends for year 1, 2 and 3

Dividends(D1)=[Current Dividends(D0)×(1+Growth Rate(g))]=[$1×(1+4%)]=$1.04Dividends(D2)=[Current Dividends(D1)×(1+Growth Rate(g))]=[$1.04×(1+4%)]=$1.0816 or $1.08Dividends(D3)=[Current Dividends(D2)×(1+Growth Rate(g))]=[$1.0816×(1+4%)]=$1.124864 or $1.12

Therefore, the expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.

b.

Summary Introduction

To determine: The selling price of stock.

b.

Expert Solution

Answer to Problem 12QP

The selling price of stockis $13.

Explanation of Solution

Determine the selling price of stock

Value of Stock(P0)=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$1.0412%−4%]=$13

Therefore, the selling price of stockis $13.

c.

Summary Introduction

To determine: The projected stock price three years from now.

c.

Expert Solution

Answer to Problem 12QP

The projected stock price three years from nowis $14.62.

Explanation of Solution

Determine the projected stock price three years from now

Expected Stock Price(P0)=[Current Dividends(D3)×(1+Growth Rate(g))Required Return(r)−Growth Rate(g)]=[$1.124864×(1+4%)12%−4%]=$14.623232 or $14.62

Therefore, the projected stock price three years from nowis $14.62.

d.

Summary Introduction

To determine: The projectedcash flows for years 1, 2 and 3.

d.

Expert Solution

Answer to Problem 12QP

The projectedcash flows for years 1 are $1.04, year 2 are $1.08 and year 3 are $15.75.

Explanation of Solution

Determine the projected cash flows for years 1, 2 and 3

The cash flows for year 1 and 2 will remain same as $1.04 and $1.08 respectively since the purchase happens only in year 3. The cash flow for year 3 is calculated below,

Cash FlowYear 3=[Current Dividends(D3)+Expected Stock Price(P0)]=[$1.124864+$14.623232]=$15.748096 or $15.75

Therefore, the cash flows for year 3 is $15.75.

e.

Summary Introduction

To determine: The present value of stream of payments.

e.

Expert Solution

Answer to Problem 12QP

The present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.

Explanation of Solution

Determine the cash flows for year 1, 2 and 3

Excel Spreadsheet:

FUNDAMENTALS OF CORPORATE FINANCE, Chapter 7, Problem 12QP , additional homework tip 1

Excel Workings:

FUNDAMENTALS OF CORPORATE FINANCE, Chapter 7, Problem 12QP , additional homework tip 2

Therefore, the present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.

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Answer 5

Chapter 7, Problem 12QP

a.

Summary Introduction

To determine: The expected dividends for year 1, 2 and 3.

a.

Expert Solution

Answer to Problem 12QP

The expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.

Explanation of Solution

Determine the expected dividends for year 1, 2 and 3

Dividends(D1)=[Current Dividends(D0)×(1+Growth Rate(g))]=[$1×(1+4%)]=$1.04Dividends(D2)=[Current Dividends(D1)×(1+Growth Rate(g))]=[$1.04×(1+4%)]=$1.0816 or $1.08Dividends(D3)=[Current Dividends(D2)×(1+Growth Rate(g))]=[$1.0816×(1+4%)]=$1.124864 or $1.12

Therefore, the expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.

b.

Summary Introduction

To determine: The selling price of stock.

b.

Expert Solution

Answer to Problem 12QP

The selling price of stockis $13.

Explanation of Solution

Determine the selling price of stock

Value of Stock(P0)=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$1.0412%−4%]=$13

Therefore, the selling price of stockis $13.

c.

Summary Introduction

To determine: The projected stock price three years from now.

c.

Expert Solution

Answer to Problem 12QP

The projected stock price three years from nowis $14.62.

Explanation of Solution

Determine the projected stock price three years from now

Expected Stock Price(P0)=[Current Dividends(D3)×(1+Growth Rate(g))Required Return(r)−Growth Rate(g)]=[$1.124864×(1+4%)12%−4%]=$14.623232 or $14.62

Therefore, the projected stock price three years from nowis $14.62.

d.

Summary Introduction

To determine: The projectedcash flows for years 1, 2 and 3.

d.

Expert Solution

Answer to Problem 12QP

The projectedcash flows for years 1 are $1.04, year 2 are $1.08 and year 3 are $15.75.

Explanation of Solution

Determine the projected cash flows for years 1, 2 and 3

The cash flows for year 1 and 2 will remain same as $1.04 and $1.08 respectively since the purchase happens only in year 3. The cash flow for year 3 is calculated below,

Cash FlowYear 3=[Current Dividends(D3)+Expected Stock Price(P0)]=[$1.124864+$14.623232]=$15.748096 or $15.75

Therefore, the cash flows for year 3 is $15.75.

e.

Summary Introduction

To determine: The present value of stream of payments.

e.

Expert Solution

Answer to Problem 12QP

The present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.

Explanation of Solution

Determine the cash flows for year 1, 2 and 3

Excel Spreadsheet:

FUNDAMENTALS OF CORPORATE FINANCE, Chapter 7, Problem 12QP , additional homework tip 1

Excel Workings:

FUNDAMENTALS OF CORPORATE FINANCE, Chapter 7, Problem 12QP , additional homework tip 2

Therefore, the present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.

Answer 6

Chapter 7, Problem 12QP

a.

Summary Introduction

To determine: The expected dividends for year 1, 2 and 3.

a.

Expert Solution

Answer to Problem 12QP

The expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.

Explanation of Solution

Determine the expected dividends for year 1, 2 and 3

Dividends(D1)=[Current Dividends(D0)×(1+Growth Rate(g))]=[$1×(1+4%)]=$1.04Dividends(D2)=[Current Dividends(D1)×(1+Growth Rate(g))]=[$1.04×(1+4%)]=$1.0816 or $1.08Dividends(D3)=[Current Dividends(D2)×(1+Growth Rate(g))]=[$1.0816×(1+4%)]=$1.124864 or $1.12

Therefore, the expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.

Answer 7

Chapter 7, Problem 12QP

a.

Summary Introduction

To determine: The expected dividends for year 1, 2 and 3.

Answer 8

a.

Expert Solution

Answer to Problem 12QP

The expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Determine the expected dividends for year 1, 2 and 3

Dividends(D1)=[Current Dividends(D0)×(1+Growth Rate(g))]=[$1×(1+4%)]=$1.04Dividends(D2)=[Current Dividends(D1)×(1+Growth Rate(g))]=[$1.04×(1+4%)]=$1.0816 or $1.08Dividends(D3)=[Current Dividends(D2)×(1+Growth Rate(g))]=[$1.0816×(1+4%)]=$1.124864 or $1.12

Therefore, the expected dividends for year 1 are $1.04, year 2 are $1.08 and year 3 are $1.12.

Answer 13

b.

Summary Introduction

To determine: The selling price of stock.

b.

Expert Solution

Answer to Problem 12QP

The selling price of stockis $13.

Explanation of Solution

Determine the selling price of stock

Value of Stock(P0)=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$1.0412%−4%]=$13

Therefore, the selling price of stockis $13.

Answer 14

b.

Summary Introduction

To determine: The selling price of stock.

Answer 15

b.

Expert Solution

Answer to Problem 12QP

The selling price of stockis $13.

Answer 16

b.

Expert Solution

Answer 17

b.

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Determine the selling price of stock

Value of Stock(P0)=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$1.0412%−4%]=$13

Therefore, the selling price of stockis $13.

Answer 20

c.

Summary Introduction

To determine: The projected stock price three years from now.

c.

Expert Solution

Answer to Problem 12QP

The projected stock price three years from nowis $14.62.

Explanation of Solution

Determine the projected stock price three years from now

Expected Stock Price(P0)=[Current Dividends(D3)×(1+Growth Rate(g))Required Return(r)−Growth Rate(g)]=[$1.124864×(1+4%)12%−4%]=$14.623232 or $14.62

Therefore, the projected stock price three years from nowis $14.62.

Answer 21

c.

Summary Introduction

To determine: The projected stock price three years from now.

Answer 22

c.

Expert Solution

Answer to Problem 12QP

The projected stock price three years from nowis $14.62.

Answer 23

c.

Expert Solution

Answer 24

c.

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

Determine the projected stock price three years from now

Expected Stock Price(P0)=[Current Dividends(D3)×(1+Growth Rate(g))Required Return(r)−Growth Rate(g)]=[$1.124864×(1+4%)12%−4%]=$14.623232 or $14.62

Therefore, the projected stock price three years from nowis $14.62.

Answer 27

d.

Summary Introduction

To determine: The projectedcash flows for years 1, 2 and 3.

d.

Expert Solution

Answer to Problem 12QP

The projectedcash flows for years 1 are $1.04, year 2 are $1.08 and year 3 are $15.75.

Explanation of Solution

Determine the projected cash flows for years 1, 2 and 3

The cash flows for year 1 and 2 will remain same as $1.04 and $1.08 respectively since the purchase happens only in year 3. The cash flow for year 3 is calculated below,

Cash FlowYear 3=[Current Dividends(D3)+Expected Stock Price(P0)]=[$1.124864+$14.623232]=$15.748096 or $15.75

Therefore, the cash flows for year 3 is $15.75.

Answer 28

d.

Summary Introduction

To determine: The projectedcash flows for years 1, 2 and 3.

Answer 29

d.

Expert Solution

Answer to Problem 12QP

The projectedcash flows for years 1 are $1.04, year 2 are $1.08 and year 3 are $15.75.

Answer 30

d.

Expert Solution

Answer 31

d.

Expert Solution

Answer 32

Expert Solution

Answer 33

Explanation of Solution

Determine the projected cash flows for years 1, 2 and 3

The cash flows for year 1 and 2 will remain same as $1.04 and $1.08 respectively since the purchase happens only in year 3. The cash flow for year 3 is calculated below,

Cash FlowYear 3=[Current Dividends(D3)+Expected Stock Price(P0)]=[$1.124864+$14.623232]=$15.748096 or $15.75

Therefore, the cash flows for year 3 is $15.75.

Answer 34

e.

Summary Introduction

To determine: The present value of stream of payments.

e.

Expert Solution

Answer to Problem 12QP

The present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.

Explanation of Solution

Determine the cash flows for year 1, 2 and 3

Excel Spreadsheet:

FUNDAMENTALS OF CORPORATE FINANCE, Chapter 7, Problem 12QP , additional homework tip 1

Excel Workings:

FUNDAMENTALS OF CORPORATE FINANCE, Chapter 7, Problem 12QP , additional homework tip 2

Therefore, the present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.

Answer 35

e.

Summary Introduction

To determine: The present value of stream of payments.

Answer 36

e.

Expert Solution

Answer to Problem 12QP

The present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.

Answer 37

e.

Expert Solution

Answer 38

e.

Expert Solution

Answer 39

Expert Solution

Answer 40

Explanation of Solution

Determine the cash flows for year 1, 2 and 3

Excel Spreadsheet:

FUNDAMENTALS OF CORPORATE FINANCE, Chapter 7, Problem 12QP , additional homework tip 1

Excel Workings:

FUNDAMENTALS OF CORPORATE FINANCE, Chapter 7, Problem 12QP , additional homework tip 2

Therefore, the present value of stream of payments for year 1 are $0.93, year 2 are $0.86 and year 3 are $11.21.

Answer 41

Ch. 7 - Prob. 1QP Ch. 7 - Prob. 2QP Ch. 7 - Prob. 3QP Ch. 7 - Prob. 4QP Ch. 7 - Prob. 5QP Ch. 7 - Prob. 8QP Ch. 7 - Prob. 9QP Ch. 7 - Prob. 10QP Ch. 7 - Prob. 11QP Ch. 7 - Prob. 12QP

The expected dividends for year 1, 2 and 3.

To determine: The expected dividends for year 1, 2 and 3.

Answer to Problem 12QP

Explanation of Solution

To determine: The selling price of stock.

Answer to Problem 12QP

Explanation of Solution

To determine: The projected stock price three years from now.

Answer to Problem 12QP

Explanation of Solution

To determine: The projectedcash flows for years 1, 2 and 3.

Answer to Problem 12QP

Explanation of Solution

To determine: The present value of stream of payments.

Answer to Problem 12QP

Explanation of Solution

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