Question 1a) Using your Excel spreadsheet for SUDSY Incorporated, USING the foll
ID: 2763374 • Letter: Q
Question
Question 1a) Using your Excel spreadsheet for SUDSY Incorporated, USING the following rates of growth for dividends determine the price for Sudsy today(Po). Growth rate year 1= 5.00% Growth rate year 2= 5.00% Growth rate year 3= 5.00% Growth rate year 4= 7.00% K=15% Dividend year 0= $1.00
Po= $12.69
Po=$15.00
Po= $45.00
Po= $55.00
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Question 1b)
The intrinsic value of a stock equal to the future values of the dividends.
True
False
Question 1c)
Using the constant growth model from our chapter on stocks and given the following this stock should see for around $47.70 today.
D0= $2.25, growth rate = 6%, K (required return)= 11%
True
False
Question 1d)
If Company A has a current dividend of $5.00 and no growth expected, and the return on stocks like this are 8%, this stock should sell for around: $30.00
True
False
Question 1e)
Suppose the current dividend for a stock is $0.42 and is expected to grow 20% annually for the next three years and then 6% annually for the foreseeable future. What will the dividend be four years from today?
$0.42
$0.77
$0.73
cannot determine without a discount rate
Po= $12.69
Po=$15.00
Explanation / Answer
1.(a)
P0= D1/(k-g)
D1 = $1.05
D2 = $1.10
D3 = $1.58
D4 = $1.24
P0 = $1.05/(1+.15)1 +$1.10/(1+.15)2 +$1.58/(1+.15)3 +$1.24/(.15-.07)(1+.15)-3
=$12.69
1(b) False, The Intrinsic Value of a share is the future value of all dividend cash flows discounted at the appropriate discount factor
1(c). D1= 2.25*106% = $2.385
P0 = $2.385/.11-.06 = $47.7 So The Answer Is True
1(d) P0 = $5/.08 =$62.5 So the answer is False
1(e)
D0 = $0.42
D1 = $0.42*1.20= $ 0.504
D2 = $ 0.504*1.2=$ 0.6048
D3 = $ 0.6048*1.2 =$ 0.72576
D4 = $ 0.72576*1.2=$. 0.769306
So Answer is $0.77
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