Levantine2643
29.08.2019 •
Business
The ramirez company's last dividend was $1.75. its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. its required return (rs) is 12%. what is the best estimate of the current stock price? a. $41.58.b. $42.64.
c. $43.71.d. $44.80.e. $45.92.
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Ответ:
option b is correct
current stock price is $42.64
Explanation:
given data
dividend = $1.75
growth rate = 25% for 2 year
growth rate 1 = 6%
required return 2 = 12%
to find out
current stock price
solution
we will find here first stock price after 2 year that is
stock price = cash flow at 2 year end × ( 1+rate ) / ( rate 2 - rate1 ) 1
so here cash flow at 2 year end = 1.75×1.25 = 2.1875
2.1875 × 1.25 = 2.734
stock price = 2.734 × ( 1+ 0.06 ) / ( 0.12 - 0.06 )
stock price = 48.30
so stock price at 0.12 return
= cash flow at 1 year / ( 1+ rate 2 ) + cash flow at 2 year / ( 1+ rate 2 )² + stock price / ( 1+ rate 2 )²
= 2.1875 / ( 1+ 0.12 ) + 2.734 / ( 1+ 0.12 )² + 48.30 / ( 1+ 0.12 )²
= $42.64
so option b is correct
current stock price is $42.64
Ответ:
c. escarpment
hope this helped