Explore BrainMass
Share

Explore BrainMass

    Medtrans stock

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Medtrans is a profitable firm that is not paying a dividend on its common stock. James Weber, an analyst for A. G. Edwards, believes that Medtrans will begin paying a $1.00 per share dividend in two years and that the dividend will increase 6% annually thereafter. Bret Kimes, one of James' colleagues at the same firm, is less optimistic.

    Bret thinks that Medtrans will begin paying a dividend in four years, that the dividend will be $1.00, and that it will grow at 4% annually. James and Bret agree that the required return for Medtrans is 13%.

    a. What value would James estimate for this firm?
    b. What value would Bret assign to the Medtrans stock?

    © BrainMass Inc. brainmass.com October 9, 2019, 11:37 pm ad1c9bdddf
    https://brainmass.com/business/accounting-for-corporations/medtrans-stock-262142

    Solution Preview

    See attached file for clarity.

    Constant Growth

    Medtrans is a profitable firm that is not paying a dividend on its common stock. James Weber, an analyst for A. G. Edwards, believes that Medtrans will begin paying a $1.00 per share dividend in two years and that the dividend will increase 6% ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer what value would James estimate for this firm.

    $2.19