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    Dividend yields and how much to pay for a stock

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    Problem entails - finance question of dividend yields and how much to pay for a stock?

    Question 1

    ABC Inc. has an expected yield of 18% . It anticipates paying the same dividend of $1.10 for four more years, after which the dividend will grow at 7% a year indefinitely. Based on the dividend valuation (Capitalization) model, at what price should ABC Inc. currently sell?

    Question 2

    Net Ltd. just paid a dividend of $1.80 which it expects to be $2.90 next year and $4.00 the next year. After that time, the dividend will likely decline to 5% per year forever. With required rates of return at 14%, what should investors pay for Net Ltd?

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    Solution Preview

    Question 1

    ABC Inc. has an expected yield of 18% . It anticipates paying the same dividend of $1.10 for four more years, after which the dividend will grow at 7% a year indefinitely. Based on the dividend valuation (Capitalization) model, at what price should ABC Inc. currently sell?

    The dividend valuation (Capitalization) model is a procedure for valuing the price of a stock by using predicted dividends and discounting them back to present value, ABC Inc has the price
    The general formula used for common stock assumes that dividends will grow at a constant ...

    Solution Summary

    You will find the answer to this puzzling question inside...

    $2.19

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