How much are you willing to pay for their stock today

Assignment Help Financial Management

Reference no: EM131047256

A company just paid a dvidend of $3 per share. The company is in a very profitable growth mode and expects that its dividend will grow 10% annually over the next 4 years. The company has told investors that after the 4th year, it expects the annual dividend to grow at a 2% rate per year. Currently, the risk free rate is 2.5%, the market risk premium is 6.5%, and their beta is 0.8.

1) How much are you willing to pay for their stock today?

2) If you buy their stock today, how much will you be able to sell it for at the end of year 5?

Please show work

Reference no: EM131047256

Questions Cloud

What was the operating cash flow for the period : Marley Enterprises has financing cash flow of -$41,400 and investment cash flow of $28,600 for the year. The beginning cash balance was $65,300 and the ending cash balance was $44,800. What was the operating cash flow for the period?

Considering whether to renew your subscription : Suppose you are a regular subscriber to the Financial Times and are considering whether to renew your subscription for a single year or two years. If your cost of capital is 10%, purchasing a two-year subscription for $775 rather than a one-year subs..

Identified nonrandom variations in medication errors : A hospital has identified nonrandom variations in medication errors. These errors can emanate along a process from prescription orders to delivery to a patient. Draw a flow chart for the medication process. Construct a cause - and - effect diagram sh..

Food company specializing in high-calorie snack foods : Treynor Pie Company is a food company specializing in high-calorie snack foods. It is seeking to diversify its food business and lower its risks. It is examining three companies—a gourmet restaurant chain, a baby food company, and a nutritional produ..

How much are you willing to pay for their stock today : A company just paid a dvidend of $3 per share. The company is in a very profitable growth mode and expects that its dividend will grow 10% annually over the next 4 years. The company has told investors that after the 4th year, it expects the annual d..

Health plans currently uses zero-debt financing : Seattle Health Plans currently uses zero-debt financing. Its operating income (EBIT) is $1 million, and it pays taxes at a 40 percent rate. It has $5 million in assets and, because it is all-equity financed, $5 million in equity. Suppose the firm is ..

The company expects its dividends to grow : A company is growing and doesn't expect to initiate dividents for 10 years, at which time it will pay an annual dividend of $5 per share. At that time, the company expects its dividends to grow at 6% forever. What is the most you would pay today for ..

A firm purchased some equipment at an initial cost : A firm purchased some equipment at an initial cost of $100,000. The equipment yielded an annual net saving of $10,000 per year during its 10-year life. At the end of 10 years, the equipment was sold for $10,000. Assuming an interest rate of 10%, did ..

Two mutually exclusive alternatives : Consider the following two mutually exclusive alternatives. Each alternative has a 10-year useful life and no salvage value. If the interest rate is 10%, which alternative should be selected? Answer in terms of benefit-cost ratio analysis.

User Account

All Pages