Question: TI currently does not pay any dividend. Analyst expect that the economy will start paying dividends four years from now. The first dividend is expected

TI currently does not pay any dividend. Analyst expect that the economy will start paying dividends four years from now. The first dividend is expected to be $1 per share. The dividend will grow at a constant rate of 5% after that. The risk free rate is 2% and the market risk premium is 4%. The equity beta of the company is 2. At present the stock is trading at $20 per share. Is the stock correctly priced?

Please include formulas and calculations.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

QUESTION 6 (10 POINTS) Company XYZ Inc. raised a EUROS 200 million fixed rate annual bond paying 7.0% fixed rate for 4 years per the indenture but wants to explore possibility to enter into a...

13. An analyst is valuing Red Inc. common stock using the dividend discount model. The company plans to start paying dividends with its first dividend of $3.25 per share occurring next year. To...

Question #5: Multi-Stage Growth Model [20 Points) (a) Union Pacific currently does not pay a dividend. You expect that the company will begin paying a dividend of $2 per share in 6 years, and you...

Question #5: Multi-Stage Growth Model (20 Points] (a) Union Pacific currently does not pay a dividend. You expect that the company will begin paying a dividend of $2 per share in 6 years, and you...

(a) Union Pacific currently does not pay a dividend. You expect that the company will begin paying a dividend of $2 per share in 6 years, and you expect dividends to grow indefinitely at a 3.5% rate...

ASSIGNMENT Submission Date: 1 7 th February, 2 0 2 4 in soft copy or hard copy The Garraty Company has two bond issues outstanding. Both bonds pay $ 1 0 0 annual interest plus $ 1 , 0 0 0 at...

10. Nardy Company's stock has a beta of 1.10, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is the stock's required rate of return? * O A. 10.46% O B. 11.65% O C. 10.30% D....

11. A stock that currently does not pay a dividend is expected to pay its first dividend of $1.00 five years from today. Thereafter, the dividend is expected to grow at an annual rate of 25% for the...

a) Junkies Corporation has just paid a dividend of $0.90. Dividends are expected to grow at 20% for years one and two, 15% for years three and four, 10% for years five and six, and 5% thereafter....

Please answer questions 9&13 thank you Stock Valuation 9. Ovit, Inc., has preferred stock with a price of $20 and a dividend of $1.50 per year. What is its dividend yield? 10. Suppose Acap...

ABC Inc. does not currently pay a dividend. Analysts expect ABC to commence paying annual dividends in three years. The first dividend is expected to be $2 per share. Dividends are expected to grow...

A stone of mass m is thrown upward at an angle above the horizontal and feels no appreciable air resistance. Use conservation of energy to show that at its highest point, it is a distance V02 (sin2...

please provide full step by step answers with clear explanation and highlights and bold the answer On December 31, 2020, Toro Company's Allowance for Doubtful Accounts had an unadjusted credit...

the alternative minimum tax is applied A ) in a two - tiered

Connors Construction needs a piece of equipment that can be leased or purchased. The equipment costs $100. One option is to borrow $100 from the local bank and use the money to buy the equipment. The...

To pay for your education, youve taken out $25,000 in student loans. If you make monthly payments over 15 years at 7 percent compounded monthly, how much are your monthly student loan payments?

Emily Morrison purchased a new house for $150,000. She paid $30,000 up front and agreed to pay the rest over the next 25 years in 25 equal annual payments that include principal payments plus 10...

Jim Coston was reviewing the latest income statement for Trenton Communications. For the second year in a row, the Audio division was showing a negative segment margin, and Jim thought it was time to...

Presented here are an incomplete income statement and balance sheet for Vieux Corporation. VIEUX CORPORATION Income Statement Year ended December 31, 2014 Net sales ..........................

Multiple Choice Question Demand - oriented, cost - oriented, profit - oriented, and competition - oriented are four approaches used to set

c. On the basis of these two continua, determine Oprah Winfreys communication style. d. In your opinion, does Oprah Winfrey display style flexibility?

1. During the next week, study the listening habits of students in another class in which you are enrolled. Keep a journal of your observations by identifying the nonverbal behaviors you witness. Are...

a. On the dominance continuum, place a mark where you feel she belongs.