Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. the bell weather co. is a new firm in a rapidly gr

The Bell Weather Co. is a new firm in a rapidly growing industry. The company is...

Free

80.2K

Verified Solution

Question

Finance

The Bell Weather Co. is a new firm in a rapidly growingindustry. The company is planning on increasing its annual dividendby 11% per year for the next 6 years and then decreasing the growthrate to 6% per year forever after. The company just paid its annualdividend in the amount of $1.47 per share. What is the currentvalue of one share if the required rate of return is10%?  ENTER YOUR ANSWER WITH TWO DECIMAL PLACEs(e.g., 12.25). ROUND TO THE NEAREST CENT. DO NOT USE THE DOLLARSIGN ($) IN YOUR ANSWER.

Answer & Explanation Solved by verified expert
3.6 Ratings (587 Votes)

Required rate= 10.00%
Year Previous year dividend Dividend growth rate Dividend current year Horizon value Total Value Discount factor Discounted value
1 1.47 11.00% 1.6317 1.6317 1.1 1.4834
2 1.6317 11.00% 1.811187 1.811187 1.21 1.49685
3 1.811187 11.00% 2.01041757 2.01041757 1.331 1.51046
4 2.01041757 11.00% 2.231563503 2.231563503 1.4641 1.52419
5 2.231563503 11.00% 2.477035488 2.477035488 1.61051 1.53804
6 2.477035488 11.00% 2.749509392 72.862 75.61150939 1.771561 42.68
Long term growth rate (given)= 6.00% Value of Stock = Sum of discounted value = 50.23
Where
Current dividend =Previous year dividend*(1+growth rate)^corresponding year
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 6 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

The Bell Weather Co. is a new firm in a rapidly growingindustry. The company is planning on increasing its annual dividendby 11% per year for the next 6 years and then decreasing the growthrate to 6% per year forever after. The company just paid its annualdividend in the amount of $1.47 per share. What is the currentvalue of one share if the required rate of return is10%?  ENTER YOUR ANSWER WITH TWO DECIMAL PLACEs(e.g., 12.25). ROUND TO THE NEAREST CENT. DO NOT USE THE DOLLARSIGN ($) IN YOUR ANSWER.

Other questions asked by students

Q

Important Background Information: The cytoplasm in blood cells is composed of 99% water (approximately), the...

Biology
Q

Graph the solution set of the inequality where x is x 5 3

Basic Math
Q

Given nonzero vectors u v and w use dot product and cross product notation as...

Calculus
Q

Find the discriminant of the following quadratic and use that to choose the correct statement...

Algebra
Q

Assume a manufacturing company provides the following...

Accounting
Q

On November 1, 2022, the account balances of Blue Spruce Corp. were as follows. ...

Accounting
Q

prepare a bank reconciliation at july 31, 2022 The following information pertains to...

Accounting
Q

You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage...

Accounting
Q

PLEASE PLEASE PLEASE HIGHLIGHT THE ANSWER Smiley Co. showed the flowing...

Accounting
Q

Draw the payoff of a covered call: the stock is purchased at $30; the call...

Finance
Q

solve correct otherwise I will devote P 11-1 (similar to) Question Help You bought...

Finance
Q

The balance sheet caption for common stock is the following: Common stock, $10 par...

Accounting