Question

Problem 8.5 Fresno Corp. is a fast-growing company whose management that expects to grow at a rate of 29 percent over the next two years and then to slow to a growth rate of 12 percent for the following three years. The required rate of return is 14 percent. If the last dividend paid by the company was $2.15.

What is the dividend for 1st year? (Round answer to 3 decimal places, e.g. 15.250.) D1 $ LINK TO TEXT

What is the dividend for 2nd year? (Round answer to 3 decimal places, e.g. 15.250.) D2 $ LINK TO TEXT

What is the dividend for 3rd year? (Round answer to 3 decimal places, e.g. 15.250.) D3 $ LINK TO TEXT

What is the dividend for 4th year? (Round answer to 3 decimal places, e.g. 15.250.) D4 $ LINK TO TEXT

What is the dividend for 5th year? (Round answer to 3 decimal places, e.g. 15.250.) D5 $ LINK TO TEXT

Compute the present value of these dividends if the required rate of return is 14 percent. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.20.)

Nynet, Inc., paid a dividend of $4.27 last year. The company's management does not expect to increase its dividend in the foreseeable future. If the required rate of return is 11.0 percent, what is the current value of the stock? (Round answer to 2 decimal places, e.g. 15.20.)

Ron Santana is interested in buying the stock of First National Bank. While the bank's management expects no growth in the near future, Ron is attracted by the dividend income. Last year the bank paid a dividend of $5.78. If Ron requires a return of 10.5 percent on such stocks, what is the maximum price he should be willing to pay for a share of the bank’s stock? (Round answer to 2 decimal places, e.g. 15.20.)

The current stock price of Largent, Inc., is $48.31. If the required rate of return is 20 percent, what is the dividend paid by this firm if the dividend is not expected to grow in the future? (Round answer to 2 decimal places, e.g. 15.20.)

Moriband Corp. paid a dividend of $2.66 yesterday. The company’s dividend is expected to grow at a steady rate of 5 percent for the foreseeable future. If investors in stocks of companies like Moriband require a rate of return of 20.5 percent, what should be the market price of Moriband stock? (Round dividend to 3 decimal places, e.g. 3.756 and round final answer to 2 decimal places, e.g. 15.20.)

Answer 1

Hi, As per the HOMEWORKLIB RULES, in case of multiple questions, I need to solve the first question.

The dividend for 1st year is computed as follows:

= $ 2.15 x 1.29

= $ 2.774

The dividend for 2nd year is computed as follows:

= $ 2.15 x 1.29²

= $ 3.578

The dividend for 3rd year is computed as follows:

= $ 2.15 x 1.29² x 1.12

= $ 4.007

The dividend for 4th year is computed as follows:

= $ 2.15 x 1.29² x 1.12²

= $ 4.488

The dividend for 5th year is computed as follows:

= $ 2.15 x 1.29² x 1.12³

= $ 5.027

The present value is computed as shown below:

= Dividend in year 1 / (1 + required rate of return)¹ + Dividend in year 2 / (1 + required rate of return)² + Dividend in year 3 / (1 + required rate of return)³ + Dividend in year 4 / (1 + required rate of return)⁴ + Dividend in year 5 / (1 + required rate of return)⁵

= ($ 2.15 x 1.29) / 1.14 + ($ 2.15 x 1.29²) / 1.14² + ($ 2.15 x 1.29² x 1.12) / 1.14³ + ($ 2.15 x 1.29² x 1.12² ) / 1.14⁴ + ($ 2.15 x 1.29² x 1.12³ ) / 1.14⁵

= $ 2.7735 / 1.14 + $ 3.577815 / 1.14² + $ 4.0071528 / 1.14³ + $ 4.488011136 / 1.14⁴ + $ 5.026572472 / 1.14⁵

= $ 13.16 Approximately

I request you to please post remaining questions separately, since as per the guidelines in case of multiple questions, I need to solve the first question.

Feel free to ask in case of any query relating to this question