Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I need help answering this problem for my accounting homework Problem 1035 Common stock value based on PV calculations [LO5] Beasley Ball Bearings paid a

I need help answering this problem for my accounting homework

image text in transcribed Problem 1035 Common stock value based on PV calculations [LO5] Beasley Ball Bearings paid a dividend of $4 last year. The dividend is expected to grow at a constant rate of 6 percent over the next five years. The required rate of return is 14 percent (this will also serve as the discount rate in this problem). Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the anticipated value of the dividends for the next four years. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) D1 D2 D3 D4 $ $ $ $ Anticipated Value _______ ________ ________ ________ b. Calculate the present value of each of the anticipated dividends at a discount rate of 14 percent. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) D1 D2 D3 D4 PV of Dividends $ _________ __________ _________ __________ Total $ _________ c. Compute the price of the stock at the end of the fourth year (P4). (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Stock price at Year 4 $ ___________ d. Calculate the present value of the year 4 stock price at a discount rate of 14 percent. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present value of Year 4 stock price $ __________ e. Compute the current value of the stock. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Current value $ __________ f. Use the formula given below to show that it will provide approximately the same answer as part e. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) P0 = D1 Ke g Current value $ ______ g. If current EPS were equal to $5.70 and the P/E ratio is 1.2 times higher than the industry average of 8, what would the stock price be? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Stock price $ ________ h. By what dollar amount is the stock price in part g different from the stock price in part f? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Amount $ ________ i. In regard to the stock price in part f, indicate which direction it would move if: (1) (2) (3) D1 increases Ke increases g increases

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

Management Accounting Information for creating and managing value

Authors: Kim Langfield Smith, David Smith, Paul Andon, Ronald Hilton, Helen Thorne

8th edition

9781760420413 , 978-1760420406

More Books

Students also viewed these Accounting questions

Question

2. What we can learn from the past

Answered: 1 week ago

Question

2. Develop a good and lasting relationship

Answered: 1 week ago