Elevation Systems, Incorporated, expects its dividends to grow at 25 percent per year for the next seven years before leveling off to a constant 3 percent growth rate. The required return is 11 percent. What is the current stock price if the annual dividend per share that was just paid was $1.05?
Added by Gregory A.
Step 1
Dividend for year 1 = $1.05 * (1 + 0.25) = $1.31 Dividend for year 2 = $1.31 * (1 + 0.25) = $1.64 Dividend for year 3 = $1.64 * (1 + 0.25) = $2.05 Dividend for year 4 = $2.05 * (1 + 0.25) = $2.56 Dividend for year 5 = $2.56 * (1 + 0.25) = $3.20 Dividend for year 6 Show more…
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Instructions: 1) What is the value of the preferred stock when the dividend rate is 14% and the par value is $100? The discount rate is 12%. 2) Assume a preferred stock is selling for $33 per share in the market and pays a dividend of $3.60 annually. a) What is the expected rate of return on the stock? b) If you require a 10% rate of return, what is the value of the stock to you? c) Would you invest in the stock? Explain. 3) A common stock paid $1.32 in dividends last year and is expected to grow indefinitely at an annual rate of 7%. What is the value of the stock if you require a return of 11%? 4) A common stock paid $1.32 in dividends last year. Dividends are expected to grow at 8% annually indefinitely. a) If the stock currently sells at $23.50 per share, what is the stock's expected return? b) If you require a return of 10.5%, what is the value of the stock for you? c) Should you make the investment? Explain.
Supreeta N.
1. Exxon Inc. currently pays no dividends, but the firm will begin paying dividends in 2 years. The first dividend will be $3.20 and dividends are expected to grow at 5% thereafter. If the required return on the stock is 8%, what should the stock sell for today? 1. $91.88 2. $94.28 3. $96.02 4. $98.77 5. $102.26 2. Exxon’s dividends are expected to grow at a rate of 15% during the next two years, 10 % in the third year, and at a constant rate of 5% thereafter. Exxon’s last dividend, which has just been paid, was $2.00. If the required rate of return on the stock is 12%, what would be the price of the stock in two years (P2) ? 1. $37.47 2. $38.97 3. $39.47 4. $41.47 5. $41.56 3. Exxon’s dividends are expected to grow at a rate of 15% during the next two years, 10 % in the third year, and at a constant rate of 5% thereafter. Exxon’s last dividend, which has just been paid, was $2.00. If the required rate of return on the stock is 12%, what would be the price of the stock in one year (P1) ? 1. $37.47 2. $38.97 3. $39.47 4. $41.47 5. $41.56
Breanna O.
Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders. a. Suppose a company currently pays an annual dividend of $3.60 on its common stock in a single annual installment, and management plans on raising this dividend by 3.4 percent per year, indefinitely. If the required return on this stock is 10.5 percent, what is the current share price? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. Now suppose the company in part (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just paid a dividend of $.90 per share, as it has for the previous three quarters. What is your value for the current share price now? (Hint: Find the equivalent annual end-of-year dividend for each year.) Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Current share price b. Current share price
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