Blackwater Tours pays an annual dividend which increases by 4 percent each year.

Question

Blackwater Tours pays an annual dividend which increases by 4 percent each year. The next dividend is expected to be $1.36 a share. Blackwater recently announced that they will be ceasing all dividends after 3 more years as they are planning a major expansion project and will need to conserve cash. What is the current value of this stock if the discount rate is 15 percent? $3.22 $3.37 $3.41 $3.55 $3.59 Question 24 Over the past 4 years, your firm has paid annual dividends of $1.90, $2.10, $2.20, and $2.35. What is the arithmetic average dividend growth rate? 7.30 percent 7.34 percent 7.37 percent 8.01 percent 8.05 percent

Explanation / Answer

Next year dividend 1.36 Discount Rate 15% Growth rate 4% Term 3 years Year Dividend Growth rate Growth Closing PV@15% Value 1 1.36 4% 0.0544 1.4144 0.869565 1.18 2 1.4144 4% 0.056576 1.470976 0.756144 1.07 3 1.470976 4% 0.058839 1.529815 0.657516 0.97 Price of share 3.22 Year Dividend Growth rate 1 1.9 2 2.1 0.10526 3 2.2 0.04762 4 2.35 0.06818 Total 0.22106 Average 7.37%

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