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Currently, a share of Alpha, Inc pays a dividend of $2 per year, payable at the end of each year (the year just started, so
Currently, a share of Alpha, Inc pays a dividend of $2 per year, payable at the end of each year (the year just started, so one year from today). It is expected to pay that $2 per year dividend forever. If the shareholder requires an 8% return on their investment, what price should they pay?
(2) Currently, a share of Beta, Inc pays a dividend of $3 this year - payable at the end of each year (the year just started, so one year from today). It is expected to that the dividend will grow at 4% per year forever. If the shareholder requires a 9% return on their investment, what price should they pay?
(3) Currently, a share of Gamma, Inc pays a dividend of $1 per year, payable at the end of each year (the year just started, so 1 year from today). It is expected that the dividend will double each of the following three years (so it will pay $2 at the end of year 2, $4 at the end of year 3 and $8 at the end of year 4). After year 4, the dividend will increase as 5% per year forever. If the shareholder requires a 10% return on their investment, what price should they pay?
(2) Currently, a share of Beta, Inc pays a dividend of $3 this year - payable at the end of each year (the year just started, so one year from today). It is expected to that the dividend will grow at 4% per year forever. If the shareholder requires a 9% return on their investment, what price should they pay?
(3) Currently, a share of Gamma, Inc pays a dividend of $1 per year, payable at the end of each year (the year just started, so 1 year from today). It is expected that the dividend will double each of the following three years (so it will pay $2 at the end of year 2, $4 at the end of year 3 and $8 at the end of year 4). After year 4, the dividend will increase as 5% per year forever. If the shareholder requires a 10% return on their investment, what price should they pay?
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There are 3 Steps involved in it
Step: 1
1 To calculate the price of a share of Alpha Inc we need to use the dividend discount model DDM The DDM formula is as follows Price Dividend Discount Rate Dividend Growth Rate In this case the dividen...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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