This topic contains a solution. Click here to go to the answer
« previous next »

Author Question: Central Inc. has an 11.5 required rate of return. It does not expect to initiate dividends for 20 ... (Read 73 times)

ec501234

  • Hero Member
  • *****
  • Posts: 573
on: Jul 10, 2018
Central Inc. has an 11.5 required rate of return. It does not expect to initiate dividends for 20 years, at which time it will pay 3.75 per share in dividends.
 
  At that time, Central expects its dividends to grow at 6 forever. What is an estimate of Central's price in 20 years (P20) if its dividend at the end of year 20 is 3.75? What is its price in today's dollars if you desire a rate of return of 12?
  What will be an ideal response?

Question 2

If the current price of Thaler-Made Furniture is 25 per share and next year's dividend is expected to be 1.75 per share, what is the required return if dividends are expected to grow 5 per year?
 
  A) 24
  B) 12
  C) 32
  D) 14
  E) 2


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

meryzewe

  • Sr. Member
  • ****
  • Posts: 346
Reply #1 on: Jul 10, 2018
Answer to Question 1

Answer: We use the formula: Price = Div20  . Inserting our values, we get: Price = P20 = 3.75  = = 72.2727 or about 72.27. To get today's price, we use the PVIF of with r = 0.12 and n =20 to get P0 = = 7.4923 or about 7.49.

Answer to Question 2

B


ec501234

  • Member
  • Posts: 573
Reply 2 on: Jul 10, 2018
YES! Correct, THANKS for helping me on my review

Liddy

  • Member
  • Posts: 342
Reply 3 on: Yesterday
Wow, this really help

« previous next »
 

Did you know?

In 1886, William Bates reported on the discovery of a substance produced by the adrenal gland that turned out to be epinephrine (adrenaline). In 1904, this drug was first artificially synthesized by Friedrich Stolz.

Did you know?

As many as 20% of Americans have been infected by the fungus known as Histoplasmosis. While most people are asymptomatic or only have slight symptoms, infection can progress to a rapid and potentially fatal superinfection.

Did you know?

Though the United States has largely rejected the metric system, it is used for currency, as in 100 pennies = 1 dollar. Previously, the British currency system was used, with measurements such as 12 pence to the shilling, and 20 shillings to the pound.

Did you know?

Drug-induced pharmacodynamic effects manifested in older adults include drug-induced renal toxicity, which can be a major factor when these adults are experiencing other kidney problems.

Did you know?

A strange skin disease referred to as Morgellons has occurred in the southern United States and in California. Symptoms include slowly healing sores, joint pain, persistent fatigue, and a sensation of things crawling through the skin. Another symptom is strange-looking, threadlike extrusions coming out of the skin.

Acceptable ranges of respiratory rate Acceptable ranges of respiratory rate
Central Tendency in Skewed Distributions Central Tendency in Skewed Distributions
A central port fuel-injection system. A central port fuel-injection system.
For each function f(x) = 6x^2 - 4, estimate the instantaneous rate of change for the given ... For each function f(x) = 6x^2 - 4, estimate the instantaneous rate of change for the given ...
High school science classes are required to use deductive logic High school science classes are required to use deductive logic
Simplified diagram of information flow (the central dogma) from DNA to RNA Simplified diagram of information flow (the central dogma) from DNA to RNA
Video: Oral Hygiene & Braces Animation

For a complete list of videos, visit our video library