Battles, Inc. just paid an annual dividend of $1.20 a share. The dividend will i

Question

Battles, Inc. just paid an annual dividend of $1.20 a share. The dividend will increase by 3 percent for the next three years and then increase by 2 percent annually thereafter. What is the present value of this stock at a discount rate of 9 percent? Bottle Top, Inc. recently announced they will pay their first annual dividend next year in the amount of $0.75 a share. The dividend will be increased by 4 percent annually thereafter. How much are you willing to pay for one share of this stock if you require a 10 percent rate of return? The common stock of the Paper Co. is selling for $41.40 a share and offers an 8.2 percent rate of retum. The dividend growth rate is constant at 4 percent. What is the expected amount of the next dividend? The Ward Co. has 500,000 shares of stock outstanding with a market price of $37.59 a share. The company has three open positions on their board of directors. You want to assure yourself of winning one of those seats assuming that no one else votes for you. The company uses cumulative voting. How much will it cost you to purchase sufficient shares to ensure your election assuming that you currently do not own any shares? Hardware, Inc. recently announced their annual dividend will be increase to $3.15 a share for next year with annual increases in the dividend amount of 1.15 percent thereafter. You require a 13.5 percent rate of return on this relatively risky security. How much arc you willing to pay for one share of this stock? Dividends become a liability of a corporation: a fiscal year commences for all dividends that will be paid in that year. on the ex-dividend date. when they are declared. on the payment date.

Explanation / Answer

Answer to the 1st question: (plaese post each question separately)

Q-5) Option -A

Present value of stock = Present value of the dividends of next 3 years + PV of share price at the end of year 3

Present value of the dividends of next 3 years:

PV of share price at the end of year 3:

Dividend of year 4/(discount rate - Growth rate)

= (1.311* (1+0.02)) /(0.09-0.02) = $19.103

Present value of this = $19.103 /(1.09)3 = $14.751

So the Present value of stock = = $3.218 + $14.751 = $17.97 (ans)

Year Dividends PVF @9% Discounted dividends 0 1.2 1 1.236 (1.2*1.03) 0.9174 1.1339 2 1.273 (1.236*1.03) 0.8417 1.0715 3 1.311 (1.273*1.03) 0.7722 1.0125 Total PV = 3.2180

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