After careful analysis, you have determined that a firm’s dividends should grow at 15%, on average, in the foreseeable future. The firm’s last dividend was $1.5. Compute the current price of this stock, assuming the required return is 20%

After careful analysis, you have determined that a firm’s dividends should grow at 15%, on average, in the foreseeable future. The firm’s last dividend was $1.5. Compute the current price of this stock, assuming the required return is 20%

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance

Section: Chapter Questions

Problem 11PAE

See similar textbooks

Related questions

Q: According to the efficient market hypothesis, the way to get a good return in the stock market is…

A: Share prices, according to the efficient market hypothesis (EMH) or theory, accurately reflect all…

Q: True or False: Increasing the number of stocks in a portfolio reduces firm-specific risk. True…

A: Risks implies to the future uncertainty about the deviation of the earning an individual might earn…

Q: The Franko Company has a beta of 1.20 By what percent will the rate of return on the stock of Franko…

A: We have been given that the Franko Company has a beta of 1.20. Market return is going to rise by…

Q: According to the efficient markets hypothesis,a. changes in stock prices are impossible to predict…

A: The efficient market hypothesis would result in the stock markets would result in the markets to be…

Q: (i) random walk hypothesis, (ii) efficient market hypothesis and (iii) behavioral finance. Discuss…

A: The stock market is a market of stocks, the stocks are the business ownerships that a person can…

Q: what would you pay today for a stock that is expected to make $1.50 dividend in one year if the…

A: Economics is a branch of social science that describes and analyzes the behaviors and decisions…

Q: Your retirement portfolio comprises 100 shares of the Standard & Poor's 500 fund (SPY) and 100…

A: *Answer:

Q: mic indicator.

A: Leading indicators are considered to be a heads-up for investors and economists who hope to in turn…

Q: Find change in stock if opening stock is $40,000 and closing stock is $76,000?

A: As per the question we are given that opening stock = $40,000 closing stock = $76,000 we have to…

Q: If you reinvested all dividends, what would be the dollar value of your position on last day of…

A: SPY was the principal file trade exchanged asset (ETF) and completely repeats the file at a value…

Q: Dividends paid to policy holders on participating policies are treated by the IRS as a return of…

A: A dividend is paid when a company's board of directors decides to distribute a portion of its income…

Q: What is the value of the common stock of ABD Company if the dividend paid last year was $3.50, at a…

A: Stock: It refers to the security that shows represent the company's ownership. The more stock will…

Q: Calculate change in stock if closing stock is $34000 and the opening stock is $12,000

A: The data presented in the question above is:- Closing stock = $34,000 Opening stock = $12,000 Change…

Q: TSC, Inc. sells for $23 and pays an annual per share dividend of $2.50, which you expect to grow at…

A: Price per share= $23 Annual dividend per share= $2.50 Growth rate= 7% Expected…

Q: How would you describe the relationship between a risky investment and the return on that investment…

A: Investors are two types one who loves the take risk and one who avoids risk basically they are risk…

Q: strike price of $103. The call premium is The recent price per share of Company X is $103 per share.…

A: Given The recent price per share of Company X is $103 per share. You buy 100 shares at $50.…

Q: An investment is valued approximately by the function f (t) = 50, 000e0:2v If the annual discount…

A: We are going to find the PW of investment to answer this question.

Q: ou have recently learned that the company where you work is being sold for $1,000,000. The company's…

A: The gain or loss of an investment over a given time period, represented as a percentage of the…

Q: Which of the following apply to stocks? Select all that apply. Earn gains from dividends Earn…

A: Answer: Stocks do not pay interest instead they pay dividends. Thus investors earn from dividends.…

Q: Consider a certain butterfly spread on IBM: this is a portfolio that is long one call at $250, long…

A: A call option is an agreement among a purchaser and a dealer to acquire a specific stock at a…

Q: On the advice of your uncle, you purchased 10 shares of a well-established U.S.-based corporate…

A: Interest rate can be calculated by using the spreadsheet function IRR(CF1:CFn).

Q: A firm is expected to pay a dividend of $1.35 next year and $1.50 the following year. Financial…

Q: Which of the following might place downward pressure on stock prices? Check all that apply. The…

A: In the stock market, the price of stocks are influenced by demand and supply of stocks as the market…

Q: Suppose an American buys stock issued by an Argentinian corporation. The Argentinian firm uses the…

A: Direct funding also known as Foreign Direct Investment (FD) refer to Foreign company acquiring…

Q: what equation can determine whether a stock or asset is overvalued significantly?

A: Technical and quantitative analysis are used by traders to determine if a stock is overvalued.…

Q: If a firm earns $500 million in profits for the year and they retain $175 million, how much do they…

A: Retained earnings are those earnings that are earned by the firm but have not been returned to…

Q: you are paying 6% on your fixed-rate mortgage & earning 5% on your stock index fund. You are almost…

A: Interest refers to the amount paid in excess of the principal amount by the borrower to the lender.…

Q: What is an economically meaningful corporate event from a shareholders’ ownership perspective? a.…

A: Common Business Practices Stock splits, dividends, mergers and acquisitions, rights issues, and…

Q: Pls don't copy from any other tutor site. Q.What is the present value of $5,000,000 fifteen years…

A: Exponential discount is the specific form of discount function which is used in the analysis of…

Q: As the extract from the article shows, in September 2020 Unity Software had an IPO with a selling…

A: % increase at the at day high 48% Company valuation (Billion dollars) 20 Stock price 76.79…

Q: Suppose that if you purchase a share of SuperCo, you will receive an annual dividend of $2.59 next…

A: Answer; Given Annual Dividend= $ 2.59 Approprate Discount Rate = 6.75% 0r 0.0675…

Q: DownUnder, is a publicly traded company, but it does not intend to raise any new capital in the next…

A: Securities are investment exchanged on a secondary market. There are three sorts: equity, bonds, and…

Q: Find the value of closing stock if opening stock is $30 million and change in stock is $8 million

A: The information given to us is as follows:- Opening stock = $30 million Change in stock = $8…

Q: Fortune magazine regularly publishes a list of the “most respected” companies. According to the…

A: Answer- Need to find- Fortune magazine regularly publishes a list of the “most respected” companies.…

Q: Assume that instead of spending $30,000 on your wedding, you only spend $5,000. You use the…

Q: Consider a company JuiceStop who issues stocks to the public for the first time in 2022. JuiceStop…

A: The sum of the money value of goods and services produced in an economy throughout a financial year,…

Q: A firm that owns and manages rental properties is considering buying a building that would cost…

A: Given, Present value of building = $800,000 Revenue = $50,000…

Q: Explain how will the following transactions affect Bangladeshi NCO? Does this transaction affect…

A: In an open economy, net capital outflow refers to the total amount of cash that goes outside the…

Q: "A corporation is trying to decide whether to buy the patent for a product designed by another…

A: Given: Interest rate = 15.7%Probability of high demand = 0.47Probability of light demand = 0.21

Q: Suppose you are willing to pay $30 today for a share of stock which you expect to sell at the end of…

A: A dividend refers to a distribution of profits by a company to its shareholders. When a company…

Q: Why might a company’s stock price fall after record earnings are announced? Conversely, why might…

A: The current price at which the share of stock is sold and purchased in the market is called stock…

Q: What is the difference between these calls? Is there a difference between the prices of these calls?…

A: American (A) and European(E) are type of Call options which are financial contracts that offer the…

Q: Why may different analysts arrive at different intrinsicvalues for the same stock?

A: The stock market deals with several fluctuations with ups and downs and many other likely…

Q: The following information is taken from Johnson & Johnson's annual reports. Its common stock is…

A: below find the answer.

Q: Why would versification over purchasing one stock? Please provide a detailed example.

A: Answer- Versification over purchasing one stock with example- There are many mis conception about…

Question

After careful analysis, you have determined that a firm’s
dividends should grow at 15%, on average, in the
foreseeable future. The firm’s last dividend was $1.5.
Compute the current price of this stock, assuming the
required return is 20%

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

After careful analysis, you have determined that a firm's dividends should grow at 7%, on average, in the foreseeable future. The firm's last dividend was $3. Compute the current price of this stock, assuming the required rate of return is 18%.
what would you pay today for a stock that is expected to make $150 dividend in one year if the expected dividend growth rate is 3% and you require a 16% retum on your investment?
You have recently learned that the company where you work is being sold for $1,000,000. The company's income statement indicates next year's profits of $30,000, which have yet to be paid out as dividends. Assuming the company will remain a "going concern" indefinitely and the interest rate will remain constant at 7%, at what (constant) rate does the owner believe that profits will grow? (Hint: the price the owner was willing to pay is the present value of the firm's future cash flows) Group of answer choices 6% 5% 4% 4.5%
You are considering a purchase of UnderDog Inc.’s stock, currently available on the NYSE for $105 a share. You have calculated that for this investment the required rate of return is 11.3% and the past dividends were growing in accordance with the GDP growth. The economy is expected to grow 2.0% in the foreseeable future. The latest dividend was $10 per share. 2) What if the GDP growth suddenly increased to 3%?
Questions: Compute the expected intrinsic price of each stock in year 5. Assume that All stocks are fairly priced such that the intrinsic and market values are equal. Dividends are paid at the beginning of the year How many units of each stock will Stephanie buy? Support your response with relevant computations. What will be the total investment cost for shares? Show appropriate calculations. Which bonds are acceptable for investment? Justify your response with suitable computations. What will be the total cost of investment in bonds? Do the stock and bond investments fall within Stephanie’s investment guidelines? Show appropriate computations in support of your response. Will Stephanie have enough funds for her investment in stocks and bonds, when needed? What will be the surplus / shortfall, if any? Given that Stephanie’s bank offers an interest rate of 6% per year, what additional amount should she have deposited as a fixed…
Assume that the risk-free rate of interest is 4% and the expected rate of return on the market is 16%. A share of stock sells for $63 today. It will pay a dividend of $3 per share at the end of the year. Its beta is 1.1. What do investors expect the stock to sell for at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Find the change in stock if:- Closing stock = $3200 Opening stock = $1300
You believe that a corporation’s dividends will grow by 6% in the foreseeable future. If the company’s last dividend payment was $20, what should be the current price of the stock assuming that the market interest rate is 10%? If your computed price is lower than the actual market price, should you buy or sell the stock? Why?
Suppose you buy a share of stock for $10 and sell it for $20; your profit is thus $10. If that happens within a year, your rate of return is an impressive 100% ($10/$10 = 1). If it takes five years, what would be the rate of return on your investment? (See Figure.)
You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years.You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
You are considering the purchase of a certain stock. You expect to own the stock for the next four years. The stock's current market price is $24.50, and you expect to sell it for $55 in four years. You also expect the stock to pay an annual dividend of $1.25 at the end of Year 1, $1.35 at the end of Year 2, $1.45 at the end of Year 3, and $1.55 at the end of Year 4. What is your expected return from this investment? Please show all the steps, including the equation(s).
A stock you are evaluating is expected to experience supernormal growth in dividends of 12 percent over the next three years. Following this period, dividends are expected to grow at a constant rate of 4 percent. The stock paid a dividend of $1.50 last year and the required rate of return on the stock is 11 percent. Calculate the stock's fair present value. (Do not round intermediate calculations.) Please show all the steps, including the equation(s).