Norman Osborn, the founder of Oscorp, had a vision of creating a corporation which steadily grows at
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- Norman Osborn, the founder of Oscorp, had a vision of creating a corporation which steadily grows at 5.5% perpetually. Analysts expect Oscorp to pay $4.2 dividend a year from today. The required rate of return from Oscorp shares is 14%.
- Calculate the stock price of Oscorp. (2 Marks)
- Norman Osborn has been informed by his scientists that they are close to reaching a breakthrough in robotics which will double their annual growth rates in the future. If their dividend grows at the current rate (5.5%) for the next three years (i.e., years 2-4) and the new growth rate is applicable after that, what will be the new stock price of Oscorp? (Note: Oscorp’s next year dividend is $4.2 and the required rate of return is 14%)(5 Marks)
- Norman Osborn changed his mind about perpetual dividend payment system. He wants to implement a plan which includes 15 years of dividend payments growing at a certain rate and no dividends afterwards. Furthermore, Norman Osborn does not want the stock price of Oscorp to be affected by this dividend policy change. The Oscorp stocks will pay $5.1 a year from today and the Oscorp stocks are currently priced at 5.5% (perpetual) growth rate. If the required rate of return is still 14%, how much annual growth should Harry aim to successfully implement dividend policy change? (3 Marks)
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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