Explore BrainMass
Share

Surgical Supplies Corp. Value of Dividends

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

Surgical Supplies Corp. paid a dividend of $1.12 over the last 12 months. The dividend is expected to grow at a rate of 25% over the next 3 years (supernormal growth). It will then grow at a normal, constant rate of 7% for the foreseeable future. The required rate of return is 12% (this will also serve as the discount rate).

a. Compute the anticipated value of the dividends for the next 3 years (D1, D2, and D3).
b. Discount each of these dividends back to the present at a discount rate of 12% and then sum them.
c. Compute the price of the stock at the end of the third year (P3): P3=D4/Ke - g
d. After you have computed P3, discount it back to the present at a discount rate of 12% for 3 years.
d. Add together the answers in part b and part d to get the current value of the stock. (This answer represents the present value of the first three periods of dividends plus the present value of the price of the stock after three periods.)

© BrainMass Inc. brainmass.com October 24, 2018, 9:17 pm ad1c9bdddf
https://brainmass.com/business/dividends-stock-repurchase-and-policy/surgical-supplies-corp-value-dividends-122475

Solution Preview

a. Compute the anticipated value of the dividends for the next 3 years (D1, D2, and D3).

D1 = $1.12 x 1.25 = $1.40
D2 = $1.40 x 1.25 = $1.75
D3 = $1.75 x 1.25 = $2.19

b. Discount each of these dividends back to the present at a ...

Solution Summary

This solution is comprised of a detailed calculation to compute the anticipated value of the dividends for the next 3 years (D1, D2, and D3), discount each of these dividends back to the present at a discount rate of 12% and then sum them, compute the price of the stock at the end of the third year (P3): P3=D4/Ke - g, discount it back to the present at a discount rate of 12% for 3 years, and add answers together to get the current value of the stock.

$2.19
See Also This Related BrainMass Solution

Johnson & Johnson and Coca-Cola financial statements and ratios

I have identified two corporations, Johnson & Johnson and Coca-Cola. I need assistance finding their financial statements, income statement, balance sheet, and statement of cash flows. I need help identifying the statement of cash flow if the corporation uses the indirect or direct method. Determine how much cash was generated from operations, financing, and investing. Specify how much free cash flow each corporation has generated and calculate the current ratio, inventory turnover, gross profit percentage days' sales in receivables, and debt ratio.

I am only completing part one of the attachment.

View Full Posting Details