expected to pay its first dividend of $0.42 per share in two years. This dividen
ID: 2781325 • Letter: E
Question
expected to pay its first dividend of $0.42 per share in two years. This dividend will grow at 10 percent indefinitely. Use an 11.5 percent discount rate. Compute the value of this stock. (Round your answer to 2 decimal places.) expected to pay its first dividend of $0.42 per share in two years. This dividend will grow at 10 percent indefinitely. Use an 11.5 percent discount rate. Compute the value of this stock. (Round your answer to 2 decimal places.) expected to pay its first dividend of $0.42 per share in two years. This dividend will grow at 10 percent indefinitely. Use an 11.5 percent discount rate. Compute the value of this stock. (Round your answer to 2 decimal places.)Explanation / Answer
Value after year 2=(Dividend for year 2*Growth rate)/(Discount rate-Growth rate)
=(0.42*1.1)/(0.115-0.1)=$30.8
Hence value of stock=Future dividends*Present value of discounting factor(11.5%,time period)
=0.42/1.115^2+30.8/1.115^2
=$25.11(Approx),
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