diuation Mind Tap - Cengage Le CENGAGE MINDTAP a se Ch 07: Assignment - Corporate Valuation and Stock Valuation 3. Expected dividends as a basis for stock values The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 per share, and dividends are exp grow at a constant rate of 3.50% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the dividen stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends. Calculate the present value (PV) of the dividend paid today (D.) and the discounted value of the dividends expected to be paid 10 and 20 yea now (D10 and D20 ). Assume that the stock's required return (r.) is 10.40%. Note: Carry and round the calculations to four decimal places. Dividend's expected Future Value Expected Dividend's Present Value Time Period Now End of Year 10 End of Year 20 End of Year 50 Using the orange curve (square symbols), plot the present value of each of the expected future dividends for years 10, 20, and 50. The resulting will illustrate how the PV of a particular dividend payment will decrease depending on how far from today the dividend is expected to be received. Note: Round each of the discounted values of the of dividends to the nearest tenth decimal place before plotting it on the graph. You can mouse o the points in the graph to see their coordinates. Valuation CENGAGE MINDTAP Mind Tap - Cengage Lea Ch 07: Assignment - Corporate Valuation and Stock Valuation Q Sea the points in the graph to see their coordinates. 6.00 FV of Dividends 5.00 Discounted Dividends 4.00 DIVIDENDS ($) V 3.00 2.00 O o 1.00 PV of Dividends 0 0 10 20 30 40 50 60 YEARS diuation Mind Tap - Cengage Le CENGAGE MINDTAP a se Ch 07: Assignment - Corporate Valuation and Stock Valuation 3. Expected dividends as a basis for stock values The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 per share, and dividends are exp grow at a constant rate of 3.50% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the dividen stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends. Calculate the present value (PV) of the dividend paid today (D.) and the discounted value of the dividends expected to be paid 10 and 20 yea now (D10 and D20 ). Assume that the stock's required return (r.) is 10.40%. Note: Carry and round the calculations to four decimal places. Dividend's expected Future Value Expected Dividend's Present Value Time Period Now End of Year 10 End of Year 20 End of Year 50 Using the orange curve (square symbols), plot the present value of each of the expected future dividends for years 10, 20, and 50. The resulting will illustrate how the PV of a particular dividend payment will decrease depending on how far from today the dividend is expected to be received. Note: Round each of the discounted values of the of dividends to the nearest tenth decimal place before plotting it on the graph. You can mouse o the points in the graph to see their coordinates. Valuation CENGAGE MINDTAP Mind Tap - Cengage Lea Ch 07: Assignment - Corporate Valuation and Stock Valuation Q Sea the points in the graph to see their coordinates. 6.00 FV of Dividends 5.00 Discounted Dividends 4.00 DIVIDENDS ($) V 3.00 2.00 O o 1.00 PV of Dividends 0 0 10 20 30 40 50 60 YEARS
