AC Technology Company (ACT) is expected to have a 15 percent growth rate of dividend for the
Question:
AC Technology Company (ACT) is expected to have a 15 percent growth rate of dividend for the next four years. Beginning in year five, the growth rate of dividends is expected to drop to 9 percent per year and last indefinitely. ACT just paid a $5.00 dividend and the appropriate discount rate (e.g., the required rate of return on the stock) is 12 percent.
Suppose you plan on purchasing one share of ACT in year two, right after the dividend is paid at the end of the year. You then plan on selling your share of ACT at the end of year seven, right after the dividend is paid at the end of the year. In year two, ACT's share price is equal to the intrinsic value of the ACT share at the end of year two. In year seven, ACT's share price is equal to $ 411.47.
What is the capital gain (or loss) rate that you will receive on your investment?
What is the ACT equity security's total return? Calculate and how the price in year seven was calculated to reach the intrinsic value of $411.47?
College Accounting Chapters 1-30
ISBN: 978-0077862398
14th edition
Authors: John Price, M. David Haddock, Michael Farina