Is this statement a possible explanation for why the firm hasn’t paid a dividend yet?
Yes
No
rate positively ..
ans a | Computation of horizon value at the end of 5 year = Dividend for 6th year / (required rate - growth rate) | ||||||||
year | Dividend | ||||||||
3 | $ 3.00 | ||||||||
4 | $ 3.47 | ||||||||
5 | $ 4.01 | ||||||||
6 | $ 4.16 | ||||||||
therefore horizon value = | |||||||||
47.17 | |||||||||
ans b | Current intrensic value = Present value of future cash flow @ 12.6% rate of return | ||||||||
i | ii | iii=i+ii | iv | v=iv*iii | |||||
year | dividend | horizon value | Total cash flow | PVIF @ 12.6% | present value | ||||
3 | $ 3.00 | $ 3.00 | 0.7004624 | $ 2.10 | |||||
4 | $ 3.47 | $ 3.47 | 0.6220803 | $ 2.16 | |||||
5 | $ 4.01 | 47.17 | $ 51.18 | 0.5524692 | $ 28.28 | ||||
$ 32.53 | |||||||||
therefore intrensic value= | $ 32.53 | ||||||||
ans c | Current expected divided yield = | 0% | |||||||
Capital gain yield = | 12.60% | ||||||||
ans d | Correct answer is option : YES | ||||||||
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