Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Amazin just announced that it will begin paying dividends next year! It expects to pay a $4.75 annual dividend in exactly one year. Dividends are

  1. Amazin just announced that it will begin paying dividends next year! It expects to pay a $4.75 annual dividend in exactly one year. Dividends are expected to grow at 15% annually for the next 5 years followed by a 7% constant annual growth rate in years 6 to infinity. Investors require a return of 12%. What is the current price for Amazins stock? (note that to answer this question you should follow the steps in the questions below).

  1. What is D1?

  1. What are the dividends for the initial growth rate (until growth levels off)?

  1. What is the price of the stock from years 6 to infinity? Note that we would have to find the price at the end of year 5.

  1. What is the PV of the stocks cash flows (year 15 dividends and year 5 stock price)?

  1. What is Amazins current stock price?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investments An Introduction

Authors: Herbert B. Mayo

13th Edition

0357127951, 978-0357127957

More Books

Students also viewed these Finance questions