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Question

Finance question: There is a profitable company that is not paying a dividend on its common stock. John, an analyst believes the company will begin paying $1.00 per share dividend in 2 years and the dividend will increase annually thereafter. Jane believes that the company will begin paying a dividend in 4 years, and the dividend will be $1.00 and it will grow at 4% annually. John and Jane both agree that the required return for the company is 13%. What value would John estimate for the company? What value would Jane assign to the companies stock?

Submitted: 29 days and 13 hours ago.
Category: Finance
Value: $15
Status: CLOSED
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Posted by Falak Naz 29 days and 13 hours ago.

Answer

hi Kjl

 

Please Click here for solution in excel, if you haveany query please feel free to contact

29 days and 13 hours ago.

Reply

Thanks for being so responsive! I do have a question...where did you get the "Current price of share = 15.14/1.13 = $12.64" and "Current price of share = 11.55 / (1 + 0.13)^3 = $7.70?

 

I see how you got the value above those, and I will assume that "Div2" and "Div4" is for the years before the dividend is paid.

 

If you can clarify my question, I will accept your response. Thanks!

Accepted Answer

hi KJL

 

Actually i miss to update the figure, please click here for updated file and Div2 and Div4 are correctly understood as dividend for 2 and 4 years. accept my apologies for inconvienience.

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Expert: Falak Naz
Pos. Feedback: 100.0 %
Accepts: 
Answered: 10/24/2009

Accountant

I am a qualified Chartered Accountant. Currently i am working in financial institution.

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