# The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 17 percent a year for the next 4 years and then decreasing the growth rate to 6 percent per year. The company just paid its annual dividend in the amount of \$2.40 per share. What is the current value of one share of this stock if the required rate of return is 7.90 percent?

## Answers

Answer 1
Answer:

Answer:

\$196.91

Explanation:

The computation of the current value is shown below:

D1 = (\$2.4 × 1.17) = 2.808

D2 = (\$2.808 × 1.17) = 3.28536

D3 = (3.28536 × 1.17) = 3.8438712

D4 = (3.8438712 × 1.17) = 4.4973293

Now

Value after year 4 is

= (D4 × Growth rate) ÷ (Required return - Growth rate)

= (4.4973293 × 1.06) ÷ (0.079 - 0.06)

= 250.903635

Now the current value is

= Future dividend and value × Present value of discounting factor

=\$2.808  ÷ 1.079 + 3.28536 ÷ 1.079^2 + 3.8438712 ÷ 1.079^3 + 4.4973293 ÷ 1.079^4 + 250.903635 ÷ 1.079^4

= \$196.91

Answer 2
Answer:

### Final answer:

The current value of a share of Bell Weather Co.'s stock can be calculated using the Gordon Growth Model, which incorporates the dividend growth rate and the required rate of return. For the first four years, the annual dividend of \$2.40 grows at 17 percent a year. From the fifth year onward, it would grow at a rate of 6% against a required rate of return of 7.90%.

### Explanation:

Considering Bell Weather Co.'s dividend growth, we can calculate the present value of each future dividend and then sum those values to determine the current stock price. If the annual dividend of \$2.40 is expected to grow by 17 percent a year for the next four years, and then drop to a growth rate of 6% per year, we can calculate the stock price based on the required rate of return of 7.90%. This is achieved by using the two-stage dividend discount model, also known as the Gordon Growth Model. This model takes into account the dividend growth rate and the required rate of return to find the stock price.

For example, the dividends for the first four years would be D1 = 2.40*(1+0.17) = \$2.808, D2 = 2.808*(1+0.17) = \$3.285, D3 = 3.285*(1+0.17) = \$3.844, D4 = 3.844*(1+0.17) = \$4.495.

The dividends from the fifth year onward would be growing at a consistent rate of 6%. The value of the stock would be the present value(sum) of these dividends, discounted back at the required return of 7.9%.

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## Related Questions

New York City is issuing \$500,000,000 of general obligation bonds paying interest on January 1st and July 1st of each year until maturity. The dated date of the issue is May 1, 2020. The first payment will be made on January 1st, 2021. A bondholder purchases the issue at the offering. How many months of interest will the first and second payments cover?a. One month for the first payment; eight months for the second payment b. Two months for the first payment; six months for the second payment c. Six months for the first payment; six months for the second payment d. Eight months for the first payment; six months for the second payment

### Answers

Answer:

The correct option is D, eight months for the first payment; six months for the second payment

Explanation:

From the information provided,it is very clear that interest payment would not made until January 1st 2021,which is 8 months after the date of bond issue.

This means that interest due on July 1st 2020 of two months would be paid together with that which becomes due on 1st January 2021 for six months,hence the first interest payment is for 8 months while the next one would the normal six-month cycle.

As a result,it is convincing enough that option D fits the explanation in all respects.

What is the consequence of a firm in a competitive market selling a homogenous product?a. The firms capture some market power.
b. The product sold by one firm is a perfect substitute for the products sold by other firms in the same industry.
c. All the firms in the industry are the same size.
d. The product sold by one firm is a perfect complement for the products sold by other firms in the industry.
e. Firms in the industry can produce the same product with a different quantity of inputs.

### Answers

Answer:

The correct answer is letter "B": The product sold by one firm is a perfect substitute for the products sold by other firms in the same industry.

Explanation:

Homogeneous products are those that cannot be differentiated one from another because they have similar features and satisfy the same need. They could even be sold at the same or nearly the same price. Under this scenario, these products are perfect substitutes from one another. Consumers will not be affected if one of the manufacturers decides to stop operations.

Centurion Alarms recently declared a 10 percent stock dividend. Prior to the stock dividend, the equity section on Centurion's balance sheet was: ​ Common stock (100,000 shares outstanding, \$1 par value) \$100,000 Additional paid-in capital 60,000 Retained earnings 90,000 Total common shareholders' equity \$250,000 ​ Centurion's stock currently sells for \$4 per share. After the stock dividend is paid, the amount in the Common stock account should be _______ and the amount in the Retained earnings account should be ______. \$110,000; \$50,000 \$100,000; \$90,000 \$140,000; \$50,000 \$100,000; \$50,000 \$90,000; \$110,000

### Answers

I believe the answer would be \$110,000; \$50,000

According to the law of supply, when prices increase, the quantity of suppliers create _____.

### Answers

Answer:

increase

listening to the law when a supplier increases the price their supply increases the quality aswell!!

the answer would be increase for the blank spot

The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per year. Callahan's common stock currently sells for \$25.50 per share; its last dividend was \$2.20; and it will pay a \$2.31 dividend at the end of the current year. Using the DCF approach, what is its cost of common equity

### Answers

Answer:

14.06%

Explanation:

The computation of the cost of common equity using the DCF method is shown below:

Cost of Common Equity = [Ending year dividend ÷ Price per share] + growth rate

= [\$2.31 ÷ \$25.50] + 0.05

= 14.06%

We simply applied the above formula by considering the ending year dividend, price and the growth rate so that the correct percentage could come

Sterling Company paid \$1,200 for 3 months of rent on April 1 of the current year. On April 30, Sterling Company made an adjusting entry to account for the rent that expired during the month of April. The adjusting entry contained a debit to Rent Expense in the amount of \$ Blank 1 of 3 and a credit to Prepaid Rent in the amount of \$ Blank 2 of 3. The remaining balance in the Prepaid Rent account after the adjustment was

### Answers

Answer:

\$800

Explanation:

The computation of the remaining balance in the Prepaid Rent account after the adjustment was is shown below:-

Remaining balance = Prepaid rent - Rent expense

= \$1,200 - (\$1,200 × (1 ÷ 3))

= \$1,200 - \$400

= \$800

Therefore for computing the remaining balance in the Prepaid Rent account we simply applied the above formula.

### Final answer:

Sterling Company should debit Rent Expense and credit Prepaid Rent by \$400 for April. The remaining balance in the Prepaid Rent account after the adjustment would be \$800.

### Explanation:

Sterling Company has prepaid its rent for 3 months, which means that \$1,200 is paid for the months of April, May, and June. To calculate the monthly rent, divide the total by the number of months, so each month costs \$1,200 / 3 = \$400. Therefore, at the end of April, Sterling Company should debit Rent Expense and credit Prepaid Rent by \$400 to account for the rent that expired during April. After this transaction, the balance in the Prepaid Rent account would be \$1,200 - \$400 = \$800, which is the prepaid rent for May and June that is not used yet. The adjusting entry records the expiration of prepaid expenses and increases the accuracy of the financial statements.

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