Skip to main content
A

Anonymous

Jan 08, 2025

Huang Company’s last dividend was $1.25. The dividend growth rate is expected to be constant at 27.5% for 3 years, after which dividends

Huang Company's most recent dividend was $1.25. The company expects the dividend to grow at a constant rate of 27.5% for the next three years. After that period, dividends are projected to grow at a rate of 6% indefinitely. Given that the firm's required return (rs) is 11%, what is the current stock price of Huang Company?

0
Save

3 Answers

A
Anonymous

Dec 25, 2024

Price of stock today = $53.29ExplanationThe Dividend Valuation Model(DVM) is a technique used to value the worth of an asset. According to this model, the value of an asset is the sum of the present values of the future cash flows would that arise from the asset discounted at the required rate of return.  This model would be applied as follows: PV from year 1 to 3Year                                              Present Value ( PV)1                   1.25 × 1.275  × 1.1^(-1) =        1.43582                  1.25 × 1.275^2  × 1.1^(-2)  =  1.64923                  1.25 × 1.275^3  × 1.1^(-3) =   1.894 Total                                                       4.979Year 4 and beyondThis will be done in two stepsStep 1D× (1+g)/k-g1.25 ×1.275^4/(0.11-0.06)=66.066Step 2Present Value in year 0=66.066  × 1.11^(-3) = 48.3068Total present value =   4.979 + 48.306= 53.286Price of stock today = $53.29            
0

Want to answer this question?

Join our community to share your knowledge!

Log in Sign up

Categories

Business Management Banking

Tags

finance Investment Dividends

Related Questions

8
CSS stands for Cybernet Slash Support or Cybernet Software Systems ?

What does CSS stand for: Cybernet Slash Support or Cybernet Software Systems? I came across a company located in T. Naga...

8
Does Wells Fargo Bank open on Sundays?

Does Wells Fargo Bank open on Sundays in Bakersfield, California, specifically at the intersection of White Lane and Gos...

1
Present and future values for different interest rates find the following values. compounding/discounting occurs annually. round your

Please find below the present and future values for different interest rates. Compounding and discounting occur annually...

5
What is a bank account nickname?

I’m trying to make my car payment online, and it’s asking for a bank account nickname. What does that mean, and what sho...

3
Why do all shareholders agree on the same goal for the financial​ manager? ?

What is the reason that all shareholders tend to agree on a common goal for the financial manager?

5
Career Explortion Help? (earn 10points best answer) – help soon. thx you! :?

According to the United States Business Administration, which section is considered the most crucial part of a strategi...

4
Promotional expenditures at the introduction stage of the product life cycle are best spent on A) to maintain brand loyalty or static

Promotional expenditures during the introduction stage of the product life cycle are best allocated to: A) maintaining b...

3
Presented below are selected account balances for Homer Winslow Co as of December 31, 2014. Instructions: Prepare closing entries

Presented below are selected account balances for Homer Winslow Co. as of December 31, 2014. Instructions: Prepare the...

3
On December 31, Fighting Okra Cooking Services reports the following revenues and expenses.

On December 31, Fighting Okra Cooking Services reported the following revenues and expenses.

4
Me very urgent before you decide whether to use the cost plus model, it’s important to thoroughly research a. profit margins in neighboring

Before deciding whether to use the cost-plus model, it is crucial to thoroughly research the following factors: a. profi...