12. Dividend discount model: Using the following data provided, calculate the cu
ID: 2825916 • Letter: 1
Question
12. Dividend discount model: Using the following data provided, calculate the current price of these stocks assuming an investor required rate of return of 7%. Dividend Growth = Year X Dividend / (Year X - 1 Dividend) - 1
Company
Next year’s dividend
Next year’s expected price
Current value
Alfred Publishing
$0.45
$22.00
Aldo Food Market
$1.75
$48.00
ABC Warehouse
$2.80
$72.00
Anderson Windows
$20.00
$1000.00
Company
Next year’s dividend
Next year’s expected price
Current value
Alfred Publishing
$0.45
$22.00
Aldo Food Market
$1.75
$48.00
ABC Warehouse
$2.80
$72.00
Anderson Windows
$20.00
$1000.00
Explanation / Answer
Current value=Future dividend*Present value of discounting factor(7%,time period)
Alfred Publishing:
Current value=0.45/1.07+22/1.07
=$20.98(Approx).
Aldo Food Market:
Current value=1.75/1.07+48/1.07
=$46.50(Approx).
ABC Warehouse:
Current value=2.80/1.07+72/1.07
=$69.91(Approx).
Anderson Windows:
Current value=20/1.07+1000/1.07
=$953.27(Approx).
Company Current value Alfred Publishing $20.98(Approx) Aldo Food Market $46.50(Approx) ABC Warehouse $69.91(Approx) Anderson Windows $953.27(Approx)Related Questions
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