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i Chrome File Edit View History Bookmarks People Window Help 99% " Tue 11:31 AM Final xHomework 3 E: Homework 4 Sample Final "a Net Present value calculator x x CSecure https://ccle.ucla.edu/mod/quiz/attempt.php?attempt 2027943&page-12; UCLA CCLE IShared System Need Help CHAN, CHING Y My sites 18W-MGMT130A-2 Final/ Final Control Panel Question 13 Not yet Quiz navigation Bruin Inc. has recently announced a $7.9 EPS. Earnings are expected to grow at 5 percent per year forever. The company will not pay dividends on the stock over the next 8 years. However, it will pay 30% of its earnings as dividend starting in year 9 The payout ratio will remain at 30% forever. Earnings will continue to grow at the same 5% rate. If the required rate of return on this stock is 15 percent, what is the current share price according to the dividend growth model? Select one: 8 9 10 11 12 314oots outor 15 16 17 18 19 2021 Flisn 22 23 Finish attempt... a. 12.02 b. 1.05 Oc. 10.45 d. 1.20 e. 6.01 Previous page Next page © 2018 UC Regents Contact About Privacy Copyright UCLA linksI UCLA Registrar MyUCLA Disability Couns/PsychSvc (CAPS)

Explanation / Answer

Current EPS, EPS0 = $7.90
Growth Rate, g = 5%

EPS9 = EPS0 * (1 + g)^9
EPS9 = $7.90 * 1.05^9
EPS9 = $12.2555

Dividend Payout = 30%

D9 = EPS9 * Dividend Payout
D9 = $12.2555 * 30%
D9 = $3.6767

Required return, r = 15%

P8 = D9 / (r - g)
P8 = $3.6767 / (0.15 - 0.05)
P8 = $3.6767 / 0.10
P8 = $36.767

P0 = P8 / (1 + r)^8
P0 = $36.767 / 1.15^8
P0 = $12.02

So, current share price is $12.02

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