MathMaster logo

MathMaster

  1. Home
  2. general
  3. abc corp has just paid a dividend of 0 45 abc has an annual required return of 11 68 attempt 1 5 for 10 pts part 1 if divi
Question

ABC Corp. has just paid a dividend of $0.45. ABC has an annual required return of 11.68%. Attempt 1/5 for 10 pts. Part 1 If dividends are annual and expected to be constant, what is the value of the stock? 3.85 Correct ✓ Attempt 1/5 for 10 pts. Part 2 What is ABC's dividend yield? 11.88% Correct ✓ Attempt 1/5 for 10 pts. Part 3 From now on, assume that the dividend of $0.45 was a quarterly dividend. What is the quarterly discount rate? 2.7732% Correct ✓ Attempt 2/5 for 9 pts. Part 4 What is the value if dividends are constant and quarterly? 16.2 Correct ✓ Attempt 1/5 for 10 pts. Part 5 We now think that dividends will grow by 0.5% from quarter to quarter. The firm just paid the quarterly dividend of $0.45. What is the value of the stock? 19.88 Correct ✓ Attempt 2/5 for 9 pts. Part 6 A different analyst thinks that ABC's dividends will grow by 5% for the next 4 quarters, and then grow by 0.5% thereafter. What is the value of the stock?

156

likes
778 views

Answer to a math question ABC Corp. has just paid a dividend of $0.45. ABC has an annual required return of 11.68%. Attempt 1/5 for 10 pts. Part 1 If dividends are annual and expected to be constant, what is the value of the stock? 3.85 Correct ✓ Attempt 1/5 for 10 pts. Part 2 What is ABC's dividend yield? 11.88% Correct ✓ Attempt 1/5 for 10 pts. Part 3 From now on, assume that the dividend of $0.45 was a quarterly dividend. What is the quarterly discount rate? 2.7732% Correct ✓ Attempt 2/5 for 9 pts. Part 4 What is the value if dividends are constant and quarterly? 16.2 Correct ✓ Attempt 1/5 for 10 pts. Part 5 We now think that dividends will grow by 0.5% from quarter to quarter. The firm just paid the quarterly dividend of $0.45. What is the value of the stock? 19.88 Correct ✓ Attempt 2/5 for 9 pts. Part 6 A different analyst thinks that ABC's dividends will grow by 5% for the next 4 quarters, and then grow by 0.5% thereafter. What is the value of the stock?

Expert avatar
Velda
4.5
110 Answers
To find the value of the stock when dividends are expected to grow at a rate of 5% for the next 4 quarters and then grow by 0.5% thereafter, we can use the Gordon Growth Model. This model assumes that the value of a stock equals the present value of its future dividends.

Step 1: Calculate the dividends for each quarter for the next 4 quarters.
- The first dividend is $0.45.
- The second dividend will be 5% more than the first dividend: $0.45 * (1 + 5%) = $0.4725.
- The third dividend will be 5% more than the second dividend: $0.4725 * (1 + 5%) = $0.496125.
- The fourth dividend will be 5% more than the third dividend: $0.496125 * (1 + 5%) = $0.52093125.

Step 2: Calculate the present value of the dividends for the first 4 quarters.
- We will discount the dividends at the quarterly discount rate (which we already calculated as 2.7732%).
- The present value of the first dividend is $0.45 / (1 + 2.7732%)^1 = $0.438171.
- The present value of the second dividend is $0.4725 / (1 + 2.7732%)^2 = $0.452972.
- The present value of the third dividend is $0.496125 / (1 + 2.7732%)^3 = $0.468501.
- The present value of the fourth dividend is $0.52093125 / (1 + 2.7732%)^4 = $0.483943.

Step 3: Calculate the future dividends beyond the next 4 quarters.
- We will assume that these dividends will grow at a rate of 0.5%.
- The fifth dividend will be 0.5% more than the fourth dividend: $0.52093125 * (1 + 0.5%) = $0.523569375.
- The sixth dividend will be 0.5% more than the fifth dividend: $0.523569375 * (1 + 0.5%) = $0.526322932.

Step 4: Calculate the present value of the future dividends beyond the next 4 quarters.
- We will discount these dividends at the quarterly discount rate (2.7732%).
- The present value of the fifth dividend is $0.523569375 / (1 + 2.7732%)^5 = $0.457496.
- The present value of the sixth dividend is $0.526322932 / (1 + 2.7732%)^6 = $0.461999.

Step 5: Calculate the total present value of all dividends.
- Add up the present values of the dividends for the first 4 quarters: $0.438171 + $0.452972 + $0.468501 + $0.483943 = $1.843587.
- Add up the present values of the future dividends beyond the next 4 quarters: $0.457496 + $0.461999 = $0.919495.
- The total present value of all dividends is $1.843587 + $0.919495 = $2.763082.

Step 6: Adding the present value of the dividends to the present value of the fifth dividend gives us the stock value.
- The value of the stock is $2.763082 + $0.523569375 = $3.286651.

Answer:
The value of the stock when dividends are expected to grow at a rate of 5% for the next 4 quarters and then grow by 0.5% thereafter is $3.286651.

Frequently asked questions (FAQs)
Math question: What is the factored form of the quadratic equation 2x^2 + 5x - 12?
+
Math Question: Find the value of arcsin(sin(π/3))
+
Math question: What is the integral of sin(x) dx?
+
New questions in Mathematics
A=m/2-t isolate t
find the value of the tangent if it is known that the cos@= 1 2 and the sine is negative. must perform procedures.
The strength of Kefexin oral suspension is 100 mg/ml. Nora has been prescribed cefalexin at a dose of 50 mg/kg/day divided in two single doses. Nora weighs 14 kg. How many milliliters of solution for Nora should be given as a single dose?
A book is between 400 and 450 pages. If we count them 2 at a time there is none left over, if we count them 5 at a time there is none left over and if we count them 7 at a time there are none left over, how many pages does the book have?
2x-y=5 x-y=4
If O(3,-2) is reflected across x = 2. What are the coordinates of O
Let f(x) = x² − 1. Find the equation of the tangent line to the graph of f at the point x0 = 2.
Pedro had 80% of the amount needed to buy a game. Of this amount, you spent 15% on a watch and therefore, you will need to add another R$640.00 to purchase this game. Is the value of the game?
If X1 and X2 are independent standard normal variables, find P(X1^2 + X2^2 > 2.41)
Find the center coordinates and radius of a circle for an equation written as: 3x2 + 3y2 - 6y = —12× + 24
A company made 150,000 in the first year 145,000 in the second 140,000 in the third year successively during the first decade of this company's existence it made a total of
A loan is repaid with payments of $2226 made at the end of each month for 12 years. If interest on the loan is 5.2%, compounded semi-annually, what is the initial value of the loan? Enter to the nearest cent (two decimals). Do not use $ signs or commas.
Oi👋🏻 Toque em "Criar Nova Tarefa" para enviar seu problema de matemática. Um dos nossos especialistas começará a trabalhar nisso imediatamente!
To verify that a 1 kg gold bar is actually made of pure gold, a dynamometer is used to record the weight of the bar submerged in water and out of water. a) What would be the value of the weight of the ingot recorded by the dynamometer out of the water? b) What magnitude of thrust does the ingot receive when it is submerged? c) What would the weight of the ingot have to be when it is submerged? Data Pagua = 1000 kg/m³ Pagua= 19300 kg/m³
2 - 6x = -16x + 28
A confidence interval for a population mean has a margin of error of 3.5. a. Determine the length of the confidence interval. b. If the sample mean is 47.8 ​, obtain the confidence interval. a. The length of the confidence interval is?
The following incoming payments show up at a tax inspection: 25 000€ on 19.01.2008, 140 000€ on 27.03.2008 and 19 000€ on a date that which is illegible, and 60 000€ on 15.06.2008. On which date did the payment of the 19 000€ appear, if on 30.06.2008 the money on the account (incl. interest at 4%) is 246 088.89€? Use simple interest and 30E/360 DCC. Solution: 45 days, 15.05.08
The supply of a good registers periodic increases. With each increase in the offer, the total receipts of the bidders increase. Indicate the correct statement: a) demand is elastic b) demand is inelastic c) supply is inelastic d) supply has unit elasticity.
13/25+7/16
A plant found at the bottom of a lake doubles in size every 10 days. Yeah It is known that in 300 days it has covered the entire lake, indicate how many days it will take to cover the entire lake four similar plants.

You might be interested in