Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. 1) an investor estimates the dividend to be paid b

1) An investor estimates the dividend to be paid by company ABC to go over...

80.2K

Verified Solution

Question

Accounting

1) An investor estimates the dividend to be paid by company ABC to go over 3 growth phases. Initially, during 6 years, it will grow at a constant rate of 10% a year. During a second phase, during 8 years, it will linearly decline until reaching the steady state long-run value of 2%. In the third phase, the growth will be at that steady state rate forever. Considering this, answer the following questions (Note: consider the discount rate to be 12% and that the last dividend paid by this company was 25 per share):

a) On the basis of the approximation provided by the H model, what is the theoretical price of a share of company ABC?

b) What is the value of the premium referring to the phase of abnormal growth of dividends?

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students