A stock you are evaluating is expected to experience supernormal growth in dividends of 10 percent,...
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A stock you are evaluating is expected to experience supernormal growth in dividends of 10 percent, gs, over the next five years. Following this period, dividends are expected to grow at a constant rate of 4 percent, g. The stock paid a dividend of $4 last year, and the required rate of return on the stock is 15 percent. You are to calculate the fair present value of the stock is calculated as follows: (Present the formula, show your solution and highlight your answer/s) 1.Find the present value of the dividends during the period of supernormal growth. Use the table below. (20 marks) Dividends Year (Do(1+gs)t) (1/1+r)t Present Value 1 3 PV of dividends during supernormal growth A stock you are evaluating is expected to experience supernormal growth in dividends of 10 percent, gs, over the next five years. Following this period, dividends are expected to grow at a constant rate of 4 percent, g. The stock paid a dividend of $4 last year, and the required rate of return on the stock is 15 percent. You are to calculate the fair present value of the stock is calculated as follows: (Present the formula, show your solution and highlight your answer/s) 1.Find the present value of the dividends during the period of supernormal growth. Use the table below. (20 marks) Dividends Year (Do(1+gs)t) (1/1+r)t Present Value 1 3 PV of dividends during supernormal growth
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D 0 Dividend paid Last Year 4 PVIF Present value Interest Factor c... View the full answer
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