ZuoTi.Pro
Question

Diaz Corp. is expected to grow rapidly at a rate of 35 percent for the next...

Diaz Corp. is expected to grow rapidly at a rate of 35 percent for the next seven years. The company's first dividend, to be paid three years from now, will be $5. After seven years, the company (and the dividends it pays) will grow at a rate of 8.07 percent. What is the value of Diaz stock with a required rate of return of 14 percent? (Round intermediate calculations to 3 decimal places, e.g. 15.251 and final answer to 2 decimal places, e.g. 15.20.)

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1
Required rate= 14.00%
Year Previous year dividend Dividend growth rate Dividend current year Horizon value Total Value Discount factor Discounted value
1 0 0.00% 0 0 1.14 0
2 0 0.00% 0 0 1.2996 0
3 0 0.00% 5 5 1.481544 3.37486
4 5 35.00% 6.75 6.75 1.68896016 3.99654
5 6.75 35.00% 9.1125 9.1125 1.925414582 4.73275
6 9.1125 35.00% 12.301875 12.301875 2.194972624 5.60
7 12.301875 35.00% 16.60753125 302.66 319.2675313 2.502268791 127.59122
Long term growth rate (given)= 8.07% Value of Stock = Sum of discounted value = 145.3
Where
Current dividend =Previous year dividend*(1+growth rate)^corresponding year
Unless dividend for the year provided
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 7 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor
0 0
Add a comment
Know the answer?
Add Answer to:
Diaz Corp. is expected to grow rapidly at a rate of 35 percent for the next...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Sheridan Corp. is expected to grow rapidly at a rate of 35 percent for the next...

    Sheridan Corp. is expected to grow rapidly at a rate of 35 percent for the next seven years. The company's first dividend, to be paid three years from now, will be $5. After seven years, the company (and the dividends it pays) will grow at a rate of 7.6 percent. What is the value of Sheridan stock with a required rate of return of 14 percent? (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.20.)

  • You own a company that competes with Old World DVD Company. Instead of selling DVDs, however,...

    You own a company that competes with Old World DVD Company. Instead of selling DVDs, however, your company sells music downloads from a Web site. Things are going well now, but you know that it is only a matter of time before someone comes up with a better way to distribute music. Your company just paid a $1.97 per share dividend, and you expect to increase the dividend 10 percent next year. However, you then expect your dividend growth rate...

  • Tin-Tin Waste Management, Inc., is growing rapidly. Dividends are expected to grow at rates of 30...

    Tin-Tin Waste Management, Inc., is growing rapidly. Dividends are expected to grow at rates of 30 percent, 35 percent, 25 percent, and 18 percent over the next four years. Thereafter, management expects dividends to grow at a constant rate of 7 percent. The stock is currently selling at $45.65, and the required rate of return is 18.0 percent. Compute the dividend for the current year (D0). (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.20.)

  • Proxicam, Inc., is expected to grow at a constant rate of 7.75 percent. If the company’s...

    Proxicam, Inc., is expected to grow at a constant rate of 7.75 percent. If the company’s next dividend, which will be paid in a year, is $1.25 and its current stock price is $22.35, what is the required rate of return on this stock? (Round intermediate calculations to 4 decimal places, e.g. 1.5325 and final answer to 2 decimal places, e.g. 17.50%.) The First Bank of Ellicott City has issued perpetual preferred stock with a $100 par value. The bank...

  • PRINTER VERSION BACK NEXT Problem 8.29 Tin-Tin Waste Management, Inc., is growing rapidly. Dividends are expected...

    PRINTER VERSION BACK NEXT Problem 8.29 Tin-Tin Waste Management, Inc., is growing rapidly. Dividends are expected to grow at rates of 30 percent, 35 percent, 25 percent, and 18 percent over the next four years. Thereafter, management expects dividends to grow at a constant rate of 7 percent. The stock is currently selling at $45.65, and the required rate of return is 18.0 percent. Compute the dividend for the current year (D.). (Round intermediate calculations and final answer to 2...

  • Biarritz Corp. is growing quickly. Dividends are expected to grow at a rate of 31 percent...

    Biarritz Corp. is growing quickly. Dividends are expected to grow at a rate of 31 percent for the next three years, with the growth rate falling off to a constant 6.1 percent thereafter. The required return is 12 percent and the company just paid a dividend of $2.80. What are the dividends each year for the next four years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) What is the share price in...

  • Carla Vista Inc., is expected to grow at a rate of 19.000 percent for the next...

    Carla Vista Inc., is expected to grow at a rate of 19.000 percent for the next five years and then settle to a constant growth rate of 6.000 percent. The company recently paid a dividend of $2.35. The required rate of return is 16.000 percent Find the present value of the dividends during the rapid-growth period if dividends grow at the same rate as the company. (Round dividends to 3 decimal places, e.g. 3.351. Round present value of dividends to...

  • 1. Ivanhoe, Inc., management expects to pay no dividends for the next six years. It has...

    1. Ivanhoe, Inc., management expects to pay no dividends for the next six years. It has projected a growth rate of 25 percent for the next seven years. After seven years, the firm will grow at a constant rate of 5 percent. Its first dividend, to be paid in year 7, will be $3.61. If the required rate of return is 17 percent, what is the stock worth today? (Round intermediate calculations and final answer to 2 decimal places, e.g....

  • Biarritz Corp. is growing quickly. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter.

    Biarritz Corp. is growing quickly. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. The required return is 13 percent and the company just paid a dividend of $2.75. What are the dividends each year for the next four years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

  • Wildhorse, Inc., is a fast-growth company that is expected to grow at a rate of 23...

    Wildhorse, Inc., is a fast-growth company that is expected to grow at a rate of 23 percent (per year) for the next four years. It is then expected to grow at a constant rate of 6 percent. Wildhorse’s first dividend, of $3.60, will be paid in year 3. If the required rate of return is 18 percent, what is the current value of the stock if dividends are expected to grow at the same rate as the company? (Round all...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT