This topic contains a solution. Click here to go to the answer

Author Question: Pinecrest Inc. has a 13 required rate of return. It does not expect to initiate dividends for 10 ... (Read 82 times)

sc00by25

  • Hero Member
  • *****
  • Posts: 596
Pinecrest Inc. has a 13 required rate of return. It does not expect to initiate dividends for 10 years, at which time it will pay 5 per share in dividends. At that time Pinecrest expects its dividends to grow at 5 forever.
 
  What is an estimate of Pinecrest's price in 10 years (P10) if its dividend at the end of year 10 is 5.00? What is its price in today's dollars if you desire a rate of return of 13? Repeat the problem, but replace the 10 years with 30 years and compare the two sets of prices. Describe the relationship between the number of years before you receive dividends and today's price.
  What will be an ideal response?

Question 2

Credit and collection policies affect all of the following EXCEPT
 
  A) length of time before credit sales are collected.
  B) pricing policies.
  C) level of sales.
  D) terms of sales.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

chevyboi1976

  • Sr. Member
  • ****
  • Posts: 344
Answer to Question 1

Answer: We use the formula: Price = Div10  . Inserting in our values using 10 years, we get:
Price = P10 = 5  = = 65.625 or about 65.63. To get today's price, we use the PVIF of with r = 0.13 and n = 10 to get: P0 = = 19.33236 or about 19.33.For 30 years, we get the same value since the number of years have no effect if prior dividends were not paid. For example, we still have: Price = P30 = 5  = = 65.625 or about 65.63. To get today's price we use the PVIF of with r = 0.13 and n = 30 to get: P0 = = 1.67771 or about 1.68. We see that the longer it takes to begin dividends, the less today's price will be. By waiting an additional 20 years beyond the first 10 years, today's value fell from 19.33 to 1.68. Thus, the relationship between the number of years before you receive dividends and today's price is a negative relationship that tells us that firms that do not pay dividends or have to delay dividends are less valuable.

Answer to Question 2

A




sc00by25

  • Member
  • Posts: 596
Reply 2 on: Jul 10, 2018
Thanks for the timely response, appreciate it


connor417

  • Member
  • Posts: 329
Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

 

Did you know?

Every 10 seconds, a person in the United States goes to the emergency room complaining of head pain. About 1.2 million visits are for acute migraine attacks.

Did you know?

There are more bacteria in your mouth than there are people in the world.

Did you know?

In ancient Rome, many of the richer people in the population had lead-induced gout. The reason for this is unclear. Lead poisoning has also been linked to madness.

Did you know?

Many people have small pouches in their colons that bulge outward through weak spots. Each pouch is called a diverticulum. About 10% of Americans older than age 40 years have diverticulosis, which, when the pouches become infected or inflamed, is called diverticulitis. The main cause of diverticular disease is a low-fiber diet.

Did you know?

Recent studies have shown that the number of medication errors increases in relation to the number of orders that are verified per pharmacist, per work shift.

For a complete list of videos, visit our video library