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alpha is expected to provide a dividend of sh 20 per share per year forever starting...

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Finance

alpha is expected to provide a dividend of sh 20 pershare per year forever starting one year from now.beta is expectedto pay a dividend of sh 10 per share in one years time thereafterdividend growth is expected to be 4%per annum forever.omega is isexpected to pay a dividend of sh 10 per shar in one years timetherafter dividend growth is expected to be 20% per annum for 4yrsand zero thereafter.if marketcapitalization rate for each share is10%per annum which share is most valuable

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4.5 Ratings (668 Votes)

Company Name Alpha Beta
Dividend after one year 20 10
Dividend Growth - 4%
Capitalisation rate 10% 10%
vaule of stock = Dividend/(Capitalisation rate- Dividend growth) 200 166.6667
Company Name Omega
Dividend 10
Dividend Growth 20% for 4 years
Capitalisation rate 10%
Particulars Year 1 Year 2 Year 3 Year 4 Year 5
Dividend 10 12 14.4 17.28 20.736
Present value at 10% discount rate 9.090909 9.917355 10.81893 11.80247 12.87542
Price remains constant forever from 5th year
Price of Omega stock at beginning of 5th year = 20.736/10% = 207.36
Present value of the stock price = 207.36/(1+0.1)^4= 141.6297
Price of stock of Omega                                  = (Present value of dividends from year 1 to year 4) +
Present value of ( Dividend of year 5/10%)
                                                                                    = 183.2593
Since the value of Alpha is highest hence Alpha stock is more valuable

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alpha is expected to provide a dividend of sh 20 pershare per year forever starting one year from now.beta is expectedto pay a dividend of sh 10 per share in one years time thereafterdividend growth is expected to be 4%per annum forever.omega is isexpected to pay a dividend of sh 10 per shar in one years timetherafter dividend growth is expected to be 20% per annum for 4yrsand zero thereafter.if marketcapitalization rate for each share is10%per annum which share is most valuable

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