HW Ch 8-8

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School
Snow College **We aren't endorsed by this school
Course
FIN 3010
Subject
Finance
Date
Oct 12, 2023
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1
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8. Award: 10 out of 10.00 points Score: 100/100 Points 100 % A7X Corporation just paid a dividend of $1.35 per share. The dividends are expected to grow at 25 percent for the next 8 years and then level off to a growth rate of 8 percent indefinitely. If the required return is 15 percent, what is the price of the stock today? $1.98 $55.46 $40.58 $57.72 $56.59 We can use the two-stage dividend growth model for this problem, which is: P 0 = [D 0 (1 + g 1 )/(R g 1 )]{1 [(1 + g 1 )/(1 + R)] T }+ [(1 + g 1 )/(1 + R)] T [D 0 (1 + g 2 )/(R g 2 )] P 0 = [$1.35(1.25)/(0.15 0.25)][1 (1.25/1.15) 8 ] + [(1.25)/(1.15)] 8 [$1.35(1.08)/(0.15 0.08)] P 0 = $56.59 References Multiple Choice Learning Objective: 08-01 Explain how stock prices depend on future dividends and dividend growth. Difficulty: 2 Intermediate Section: 8.1 Common Stock Valuation
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