Finance

Have finance questions? Ask a financial expert online.

Ask an Expert,
Get an Answer ASAP!

This answer was rated:

a stock sells for $40. The next dividend will be $4 per share.

if the rate of return...
a stock sells for $40. The next dividend will be $4 per share. if the rate of return erarned on reinvested funds is 15 percent and the company reinvests 40 percent of earning in the firm. What must be the discount rate?
Show More
Show Less
Ask Your Own Finance Question
Answered in 2 minutes by:
8/12/2009
RD
RD, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 8,784
Experience: MBA, CPA
Verified

Using Constant-growth model,

stock price P = Div(1)/(r-g)

 

Where

p=$40

Div(1)= next dividend = $4

r= discount rate = ?
g = growth rate which is =rate of return on reinvested fund*retention rate

= 0.15*0.40

=0.06

Hence

As per Constant growth model

40 = 4/(r-0.06)
r - 0.06 = 4/40

r = 0.1+0.06

=0.16

 

Discount rate = 16%

 

RD
RD, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 8,784
Experience: MBA, CPA
Verified
RD and 87 other Finance Specialists are ready to help you
Ask your own question now
Customer reply replied 8 years ago
It is good answer
Was this answer helpful?
Ask RD Your Own Question
RD
RD
RD, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 8,784
8,784 Satisfied Customers
Experience: MBA, CPA

RD is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Rakhi Vasavada

Rakhi Vasavada

Financial and Legal Consultant

2,608 satisfied customers

Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years

Megan C

Megan C

Certified Public Accountant (CPA)

2,218 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

Manal Elkhoshkhany

Manal Elkhoshkhany

Tutor

1,920 satisfied customers

More than 5000 online tutoring sessions.

JKCPA

JKCPA

CPA

844 satisfied customers

Bachelors degree and CPA with Accounting experience.

Eric

Eric

Financial Manager

559 satisfied customers

Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.

R. Klein, EA

R. Klein, EA

Accountant

480 satisfied customers

TurboTax Expert. QuickBooks Certified Pro Advisor

Dimitry K., Esq.

Dimitry K., Esq.

Attorney

332 satisfied customers

NASD Licensed Rep, 1997-2001, Business Attorney

< Previous | Next >

Related Finance Questions
A stock is trading at $80 per share. The stock is expected
A stock is trading at $80 per share. The stock is expected to have a year-end dividend of $4 per share.(Do=$4), which is expected to grow at some constant rate, g, throughout time. The stock's require… read more
Annie Kavitha
Annie Kavitha
Master's Degree
713 satisfied customers
a stock sells for $40. The next dividend will be $4 per share.
a stock sells for $40. The next dividend will be $4 per share. if the rate of return erarned on reinvested funds is 15 percent and the company reinvests 40 percent of earning in the firm. What must be… read more
RD
RD
Certified Public Accountant (CPA)
8,784 satisfied customers
1. Which of the following statements is true regarding a defined
1. Which of the following statements is true regarding a defined contribution pension plan? a) The pension benefits to be received by the employee during retirement are defined in the plan. b) Defined… read more
Manal Elkhoshkhany
Manal Elkhoshkhany
Tutor
1,920 satisfied customers
Bryan: How to tell when a fixed annuity should be converted
Bryan: How to tell when a fixed annuity should be converted to monthly payout? Owner is 77 and needs extra monthly income, yet has other sources if it is best to keep this annuity without payout. Than… read more
Bryan M.
Bryan M.
Owner
Masters of Accountancy
120 satisfied customers
The last dividend paid by Klein Company was $1.00. Kleins
The last dividend paid by Klein Company was $1.00. Klein's growth rate is expected to be a constant 4 percent. Klein's required rate of return on equity (ks) is 12 percent. What is the current price o… read more
Neo
Neo
Bachelor\u0027s Degree
1,144 satisfied customers
Assume a major investment service has just given Oasis Electronics
Assume a major investment service has just given Oasis Electronics its highest investment rating, along with a strong buy recommendation. As a result, you decide to take a look for yourself and place … read more
Mr. Wilson
Mr. Wilson
Teacher
Master\u0027s Degree
200 satisfied customers
1) Which of the following categories of owners have limited
1) Which of the following categories of owners have limited liability? A. General partners B. Sole proprietors C. Shareholders of a corporation D. Both a and b 2) Which of the following best describes… read more
Haseeb
Haseeb
Cost and Management Accountant
46 satisfied customers
Do you have an expert on money questions? Whether to pay off
Whether to pay off bills or keep money in a Thrift Savings Account … read more
Carter McBride
Carter McBride
LLM
1,046 satisfied customers
I'm actual inneed if an actuary to break down my 401k
Hi I'm actual inneed if an actuary to break down my 401k amount. … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,199 satisfied customers
Are the oil pension checks and the auto rebates and the
are the oil pension checks and the auto rebates and the insurance return checks a scam … read more
taxmanrog
taxmanrog
Master\u0027s Degree
935 satisfied customers
I would like to know what is a reasonable rate of return on
I would like to know what is a reasonable rate of return on investment considered by the City of Oakland and are those exempt through the Costa Hawkins Act also exempt for this? … read more
Patrick Mullis
Patrick Mullis
Masters
18 satisfied customers
I have rrsp sin segregated mutual funds with Canada life
Hi I have rrsp sin segregated mutual funds with Canada life would I be better off switching these over to a bank such as RBC because of fees Brian… read more
Carter McBride
Carter McBride
LLM
1,046 satisfied customers
Spencer Supplies stock is currently selling for $60 a share.
Spencer Supplies' stock is currently selling for $60 a share. The firm is expected to earn $5.40 per share this year and to pay a year end dividend of $3.60. If investors require a 9% return, what rat… read more
Falak Naz
Falak Naz
Master's Degree
324 satisfied customers
Preferred Stock. Preferred Products has issued preferred ...
Preferred Stock. Preferred Products has issued preferred stock with an $8 annual dividend that will be paid in perpetuity. a. If the discount rate is 12 percent, at what price should the preferred sel… read more
vinsu
vinsu
Professor
Master Degree
224 satisfied customers
Suppose a firm estimates its WACC to be 10%. Should the WACC
Suppose a firm estimates its WACC to be 10%. Should the WACC be used to evaluate all of its potential projects, even if they vary in risk? If not, what might be “reasonable” cost of capital for averag… read more
ConceptsCoach
ConceptsCoach
Master's Degree
266 satisfied customers
If you have an all equity financed firm and the firm pays no
If you have an all equity financed firm and the firm pays no dividends, will there be no/zero cost of capital? what if the firm is all debt financed?… read more
ConceptsCoach
ConceptsCoach
Master's Degree
266 satisfied customers
Constant-Growth Model. Arts and Crafts, Inc., will pay a dividend
Constant-Growth Model. Arts and Crafts, Inc., will pay a dividend of $5 per share in 1 year. It sells today at $50 a share, and firms in the same industry provide an expected rate of return of 14 perc… read more
Manal Elkhoshkhany
Manal Elkhoshkhany
Tutor
1,920 satisfied customers
Calculate the approximate annual rate of return on investment
Calculate the approximate annual rate of return on investment of the following cash discount terms: 1) 1/15, n30. 2) 2/10, n60 3) 1/10, n90. Which of these terms, if any, is not likely to be significa… read more
Rakhi Vasavada
Rakhi Vasavada
Financial and Legal Consultant
Bachelor's Degree
2,608 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x