Altamount decides not to pay a dividend for the next 8 years but decides to pay a dividend of $9 per share 9 years from today and the dividend grows by 4 percent per year thereafter. What is the price of the stock today if Altamount's cost of capital is 10 percent,
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Altamount decides not to pay a dividend for the next 8 years but decides to pay a dividend of $9 per share 9 years from today and the dividend grows by 4 percent per year thereafter. What is the price of the stock today if Altamount's cost of capital is 10 percent, |
A model that helps to evaluate the value of the stock with the assumption that the dividend will grow every year is term as the dividend growth model.
Computation of the price of stock:
It is computed in the following manner:
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- Poulter Corporation will pay a dividend of $4.30 per share next year. The company pledges to increase its dividend by 7 percent per year, indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company’s stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.Caan Corporation will pay a $2.66 per share dividend next year. The company pledges to increase its dividend by 5 percent per year indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company's stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)Poulter Corporation will pay a dividend of $4.75 per share next year. The company pledges to increase its dividend by 7.5 percent per year, indefinitely. If you require a return of 9 percent on your investment, how much will you pay for the company’s stock today?
- Hudson Corporation will pay a dividend of $2.66 per share next year. The company pledges to increase its dividend by 5 percent per year indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company’s stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)Zion Inc. will pay a $4.25 per share dividend in year 5. The company pledges to increase its dividend by 5% (g) per year indefinitely. If you require a 10% return (r) on your investment, how much will you pay for the company’s stock today (Po)?Hudson Corporation will pay a dividend of $3.10 per share next year. The company pledges to increase its dividend by 3.40 percent per year indefinitely. If you require a return of 6.50 percent on your investment, how much will you pay for the company's stock today?
- White Wedding Corporation will pay a $3.35 per share dividend next year. The company pledges to increase its dividend by 4.34 percent per year, indefinitely. If you require a 10 percent return on your investment, how much will you pay for the company's stock today? Value of a stockCompany X is paying an annual dividend of $4.00 and has decided to pay the same amount forever. If you want to earn an annual rate of return of 12% on this investment and plan to hold the stock for 4 years, with the expectation of selling it for $40 at the end of 4 years. How much should he offer to buy the stock at?Poulter Corporation will pay a dividend of $4.40 per share next year. The company pledges to increase its dividend by 5.75 percent per year, indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company's stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current stock price
- 3. An investor plans to buy a stock for $165 and keep it for 8 years. This stock pays $10/share dividend per year (Dividend=amount of profits that the company that sells the stock pays to the stockholders every year). There are 3 equally likely outcomes of the sale price of this stock after the 8 years: Comppany will do very well and the stock will sell for $245. Compnay will in essense maintain its value and the stock will sell for the same as purchase price (i.e., $165) Company will do poorly and its stock value will drop to $145. Compute the internal rate of return for each of the 3 scenarios and its average value.You are planning to purchase the stock of Martie Inc. and you expect it to pay a dividend of $3 in 1year, $4.25 in 2 years, and $6.00 in 3 years. You expect to sell the stock for $100 in 3 years. If your required return for purchasing the stock is 12 percent, how much would you pay for the stock today?Suppose that one year ago you bought 100 shares of SodaCo for $10 per share with the expectation of receiving a perpetual dividend of $1 per share. What was your expected annual percentage return on this investment? Today,SodaCo announces that it will increase its annual dividend to $2 per share.Upon announcement, the stock price rises to $20. If you then sell the stock,what percentage returnwould you realize on your investment?What annualreturnwould the buyer of your stock expect in the future? Why is there sucha difference in returns?