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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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.

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Answers

Answer:

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Explanation:

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Answers

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Answers

Answer:

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Answers

Answer:

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Explanation:

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Answers

Answer:

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Explanation:

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Final answer:

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Explanation:

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