Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. over the next two years, yxz will oay a divudend o

over the next two years, YXZ will oay a divudend of $2.00 ans $2.75 in years...

Free

70.2K

Verified Solution

Question

Finance

over the next two years, YXZ will oay a divudend of $2.00 ans $2.75in years 1 and 2, respectively,. thereafter, dividends will grow ata rate 2% peruear. what is the current value of the firms stockassuming a required rate of return of 15%?
$19.81
$20.13
$20.42
$21.38

Answer & Explanation Solved by verified expert
4.0 Ratings (447 Votes)

$20.13

As per dividend discount model, current value of stock is present value of dividend.
Step-1:Present value of dividend of next two years
Year Dividend Discount factor Present value
1 $       2.00 0.869565 $       1.74
2 $       2.75 0.756144 $       2.08
Total $       3.82
Working:
Discount factor of :
Year 1 1.15^-1 = 0.869565
Year 2 1.15^-2 = 0.756144
Step-2:Present value of dividend of year 3 onwards
Present value = D2*(1+g)/(K-g)*DF2 Where,
= 2.75*(1+0.02)/(0.15-0.02)*0.756144 D2 Year 2 dividend $       2.75
= $    16.32 g Growth rate 2%
K Required return 15%
DF2 Discount factor of year 2 0.756144
Step-3:Value of stock
Value of stock = Present value of dividends
= $       3.82 + $    16.32
= $    20.13

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

Transcribed Image Text

over the next two years, YXZ will oay a divudend of $2.00 ans $2.75in years 1 and 2, respectively,. thereafter, dividends will grow ata rate 2% peruear. what is the current value of the firms stockassuming a required rate of return of 15%?$19.81$20.13$20.42$21.38

Other questions asked by students

Programming
1.2K views

This is Java In this problem we will write a program that asks the user to enter...

Psychology
1.2K views

Explain the major developmental milestones that take place during pre-natal development

Biology
1.2K views

14 The site of light dependent reactions in the chloroplast is A the lumen B...

Geometry
1.2K views

Tonya and Pearl each completed a separate proof to show that Tonya s Proof Statement...

Statistics
1.2K views

Complete parts a through d for the sampling distribution of the sample mean shown in...

Calculus
1.2K views

Finddy y =30 +10x-xdy=____(Simplify your answer.)

Algebra
1.2K views

You place an order for 2 100 units of Good X at a unit price...

Algebra
1.2K views

DIRECTIONS Complete each problem and show as much of your thinking as possible 1 Brandon...

Algebra
1.2K views

3 4B Exit Ticket Divide the following polynomials using any method of your choosing 77x...

Accounting
1.2K views

Activity rates and product costs using activity-based cost Idris Inc. manufactures entry and dining room...

Accounting
1.2K views

Crosby, Inc., sells $1,000,000 general obligation bonds for 98. 1. how much did they receive...

Accounting
1.2K views

In connection with the preliminary planning for the audit of XYZ Company, the auditors have...