Homework SourseMaloney Inc has an odd dividend policy The company has just
Maloney, Inc., has an odd dividend policy. The company has just paid an annual dividend of $4 per share and has announced that it will increase the dividend by $4 per year for each of the next five years, and then never pay another dividend. If you require an annual return of 12 percent on the company’s stock, how much will you pay for a share today? Note: the $4 dividend has already been paid, so you should ignore it in the present value calculations. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
| Maloney, Inc., has an odd dividend policy. The company has just paid an annual dividend of $4 per share and has announced that it will increase the dividend by $4 per year for each of the next five years, and then never pay another dividend. If you require an annual return of 12 percent on the company’s stock, how much will you pay for a share today? Note: the $4 dividend has already been paid, so you should ignore it in the present value calculations. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Solution
present value = 54.43
| Discount rate | 12.0000% | ||
| Cash flows | Year | Discounted CF= cash flows/(1+rate)^year | Cumulative cash flow |
| - | 0 | - | - |
| 8.000 | 1 | 7.14 | 7.14 |
| 12.000 | 2 | 9.57 | 16.71 |
| 16.000 | 3 | 11.39 | 28.10 |
| 20.000 | 4 | 12.71 | 40.81 |
| 24.000 | 5 | 13.62 | 54.43 |
