4. Investors expect Microtech to pay the first dividend of $1.25 at the end of Year 2. The dividend should grow at a rate of 8 percent per year during Years 3, 4, and 5. The stock can be sold for $42 at the end of Year 5. Determine the current market value of the company’s stock if the required rate of return is 12 percent.
$27.61 Please show all work typed as I am on mobile
Returns from stock = returns from dividend + returns from capital gains
Lets map the cash flows first;All units in dollar expect %s
Year 1=0
Year 2=1.25
Year 3= 1.08*1.25=1.35
Year 4=1.35*1.08=1.458
Year 5=1.458*1.08=1.574 + 42 (on sale of share)=43.574
Reqd rate of return = 12%
So we have to discount the cashflows accordingly
[0/(1.12)]+[1.25/(1.12^2)]+[1.35/(1.12^3)]+[1.458/(1.12^4)]+[43.574/(1.12^5)]=$27.61
4. Investors expect Microtech to pay the first dividend of $1.25 at the end of Year...
3. Investors expect Microtech to pay the first dividend of $1.25 at the end of Year 2. The dividend should grow at a rate of 8 percent per year during Years 3, 4, and 5. The stock can be sold for $42 at the end of Year 5. Determine the current market value of the company’s stock if the required rate of return is 12 percent. $27.61 Please Show All Work
Investors expect Microtech to pay the first dividend of $1.25 at the end of Year 2. The dividend should grow at a rate of 8 percent per year during Years 3, 4, and 5. The stock can be sold for $42 at the end of Year 5. Determine the current market value of the company’s stock if the required rate of return is 12 percent. Please show work
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