Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Roselia spends $10 per share to purchase 200 ordinary shares issued by a company called Wailmer. As a start-up, Wailmer will not pay dividends to
Roselia spends $10 per share to purchase 200 ordinary shares issued by a company called Wailmer. As a start-up, Wailmer will not pay dividends to its ordinary shareholders in the first 5 years. From 6 th year onwards, Wailmer will pay dividends at the end of each year. Wailmer will pay a $3 annual dividend per share in the 6 th year and a $4 annual dividend per share in the 7 th year. From the 8 th year onwards, this annual dividend will increase by 1% per annum and will be paid forever. Roselia wants to sell those 200 shares at the end of 5th year at the price P5 (per share), P5 is calculated by the present value of all the future dividends (that will be paid to this share) at the time the share will be resold. This excludes prior dividends paid during the first 5 years. Assume the interest rate is 6% per annum effective. Calculate the total revenue Roselia can obtain at the end of the 5th year from selling those shares in 5 -year's time
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started