ZuoTi.Pro
Question

ABC Mining Company has been operating an iron ore mine for the last 10 years. With...

ABC Mining Company has been operating an iron ore mine for the last 10 years. With the passage of time, the company finds that the iron ore extracted is declining each year. The company just paid a dividend of $2 per share and announced that the amount would decline at a rate of 3% each year for the foreseeable future. The required return for ABC Mining shares is 13%

(a) What is the price per share of ABC Mining Company?

(b) Assess and discuss why someone may want to invest in a company with negative growth in profits.

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

Homework Answers

Answer #1

a) Price = Dolitg) - Ke- $2 (1-0.03) 0.13 - (-0.03) = = $ 1.94 0.16 = $ 12.125 b) A Risk averse investou who are afraid of in

0 0
Add a comment
Know the answer?
Add Answer to:
ABC Mining Company has been operating an iron ore mine for the last 10 years. With...
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

  • An investor is considering the purchase of a share of the Utah Mining Company. The stock...

    An investor is considering the purchase of a share of the Utah Mining Company. The stock will pay a $4.95 dividend per year, beginning one year from today. This dividend is expected to grow at 10.79% per year for the foreseeable future. The investor thinks that the required return on the stock is 15% per year, based on her assessment of its risk. Based on this information, what is the price of one share of Utah Mining Stock? Hint: apply...

  • An investor is considering the purchase of a share of the Utah Mining Company. The stock...

    An investor is considering the purchase of a share of the Utah Mining Company. The stock will pay a $3.13 dividend per year, beginning one year from today. This dividend is expected to grow at 8.58% per year for the foreseeable future. The investor thinks that the required return on the stock is 15% per year, based on her assessment of its risk. Based on this information, what is the price of one share of Utah Mining Stock? Hint: apply...

  • QUESTION TWO (2) Gordon's Wealth Growth Model was initially developed by Gordon and Shapiro in 1950...

    QUESTION TWO (2) Gordon's Wealth Growth Model was initially developed by Gordon and Shapiro in 1950 and later refined by Gordon in 1962 based on the premise that dividends grow at a constant rate in perpetuity Nonetheless, this assumption does not hold in reality because projections of dividends cannot be made for an indefinite period, hence, Various versions of the dividend discount model have been developed These models were developed based on different assumptions concerning future growth The simplest form...

  • ABC Company growth rate

     ABC Company operates 18 brands. The dividend yield trailing twelve months is 0.784%, and it’s current market price per share is USD $50.89. The company group 's year to date return is -25.89%.  datePrice per share (USD $)Dividend per share (USD $)2019 Dec68.871.182018 Dec56.821.12952017 Dec67.171.02922016 Dec50.241.08842015 Dec50.651.04882014 Dec53.080.9735(a)Calculate according to the Constant Growth Model, the ABC Company's growth rate using the provided historical data(b)Suppose the company is expected to grow at the rate calculated in (a) for 3 more years,...

  • LUATION METHODS ESTION 1 a) It is now January 1, 2014. Last year ABC Company experienced...

    LUATION METHODS ESTION 1 a) It is now January 1, 2014. Last year ABC Company experienced major operational problems which affected the company's financial condition, forcing management to temporarily suspend dividend payments. It is expected that the company will not pay a dividend in 2014 and 2015 but will declare a dividend of K80 per share in 2016. Dividend growth is expected to be 10 percent in 2017 and 2018 and thereafter growth is expected to indefinitely be the same...

  • ERP has been operating a large Platinum mine for many years. The company wants to acquire...

    ERP has been operating a large Platinum mine for many years. The company wants to acquire newly available equipment that will allow it to extract platinum ore from a currently inaccessible area of the mine. Cooper Sperrylite ERP controller, has gathered the following data: a. The initial cost of the extraction equipment is $2,500,000. In addition to this cost, the equipment will require a large concrete foundation at a cost of $300,000. The vendor has quoted an additional cost of...

  • Four years ago, Company A distributed a dividend to its shareholders of € 0.3858 per share....

    Four years ago, Company A distributed a dividend to its shareholders of € 0.3858 per share. Today Company A paid a dividend of 0.80 € per share. In the past, the dividend policy of the company led to an increase in dividends each year at a steady rate. It is expected that the company will continue the same dividend policy for the next three years. Subsequently, the dividend growth rate will remain constant at 8% per annum for the foreseeable...

  • Question 1 (25 marks) You are a security analyst in ABC Investment Company Limited and are asked to analyse BBA Com...

    Question 1 (25 marks) You are a security analyst in ABC Investment Company Limited and are asked to analyse BBA Company, an IT employment agency that supplies computer programmers to financial institutions BBA's beta coefficient is 1.2. The risk-free rate is 7% and the expected rate of return on the market is 12%. BBA just paid a dividend of $2.00 each share (a) What is the expected rate of return on BBA's stock by using CAPM? (b) What would be...

  • 7. A company earned $30.00 per share and paid out $16.00 in dividends to shareholders. The...

    7. A company earned $30.00 per share and paid out $16.00 in dividends to shareholders. The company's expected return on equity is 17.0%. The company expects to maintain the same dividend payout ratio. A. Calculate the future growth rate of earnings (X.X%). (9 points) Given a Required Rate of Return of 14.0 % , Calculate the Stock Price ($X.XX): (9 points) B. If the company's stock is currently trading at $300, would you invest in it? (3 points) C. 8...

  • Ouestion 15 marks You are a security analyst in ABC Investment Company Limited and are asked...

    Ouestion 15 marks You are a security analyst in ABC Investment Company Limited and are asked to analyse BBA Company, an IT employment agency that supplies computer programmers to financial institutions BBA's beta coefficient is 1.2. The risk-free rate is 7% and the expected rate of retum on the market is 12% BBA just paid a dividend of $2.00 each share (a) What is the expected rate of return on BBA's stock by using CAPM? (b) What would be the...

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