The value of the dividend that investors expect corporation

Assignment Help Financial Management

Reference no: EM13890119

The value of the dividend that investors expect corporation B to pay one year from today is $10

Given that corporations A and B have exactly the same risk and both have a current stock price of $100. We can assume that the before-dividend stock price of Corporation B one year from now will also be $120 (stock price of Corporation A, one year from now).

Expected dividend by shareholders=Expected before dividend stock price - Expected after dividend stock price / (1- Income tax rate on dividends)

Expected dividend by shareholders = $120 - $113 / (1- 0.30) = $7 / 0.70 = $10

Reference no: EM13890119

Questions Cloud

Compute its current yield to maturity if the bonds price : Assume that you have just purchased a 3-year bond that is red empted at par with face value $1,000 and pays coupons semi-annually with annual rate 8%. If the bond is currently trading at a yield of 6%. Compute Its current price. Its current yield to ..

Complete the proof of no arbitrage lemma for equality cases : Complete the proof of the “no arbitrage lemma” for the equality cases. We know for the put-call-parity that an European call is equivalent to an European put plus a future that have the same strike price and maturity assuming the underlying stock pay..

Investor lose or gain if exchange rate at end of contract : An investor enters into a short forward contract on 100 million yen. The forward exchange rate for US$ 1 is set at US$0.012 per yen. How much does the investor lose or gain if the exchange rate at the end of the contract is (i) US$0.011 per yen, and ..

When the underlying stock pays dividends : When the underlying stock pays dividends, exhibit a scenario in which early exercising an American call could be more beneficial than holding it till expiry. Even though the underlying stock pays no dividend and the riskless rate is positive, exhibit..

The value of the dividend that investors expect corporation : The value of the dividend that investors expect corporation B to pay one year from today is $10. Given that corporations A and B have exactly the same risk and both have a current stock price of $100. We can assume that the before-dividend stock pric..

Read the focus on ethics box : Read the Focus on Ethics box (“Psst! Have You Heard Any Good Quarterly Earnings Forecasts Lately?”). Explain what quarterly earnings guidance is, and what purpose it is supposed to serve. If you were a corporate CEO, would you discontinue this practi..

Generate the most accurate value estimates for most firms : Several stock valuation models were described in the chapter, including zero-growth, constant growth, variable growth, free cash flow, book value, and P/E multiple models. Which of these do you believe would generate the most accurate value estimates..

Expected dividend growth rate-what is the value of the stock : Trust Bankers just paid an annual dividend of $1.5 per share. The expected dividend growth rate is 6.7 percent, the discount rate is 11 percent, and the dividends will last for 10 more years. What is the value of the stock?

Present value of this stream of cash flows : The state lottery's million dollar payout provides for $2 million to be paid over 24 years in 25 payments of $80,000. The first $80,000 payment is made immediately, and the 24 remaining $80,000 payments occur at the end of each of the next 24 years. ..

User Account

All Pages