New York Telephone is considering the following two dividend policies for the next five years. Year Policy #1 Policy #2 1 4.00 6.90 2 4.00 2.40 4.00 5.00 4 4.00 1.70 4.00 4.00 Required: A. What is the total of the dividends per share that the stockholders will receive over the full five year period? B. If investors see no difference in the risk between the two policies, and therefore apply a 9.4% discount rate to both policies, what is the present value of each dividend stream? C. Suppose investors see Policy #2 as the riskier of the two, and they therefore apply a 9.4% discount rate to Policy #1 and a 12% discount rate to Policy #2. Under this scenario, what is the present value of each dividend stream? D. What conclusions can be drawn from this exercise?

New York Telephone is considering the following two dividend policies for the next five years. Year Policy #1 Policy #2 1 4.00 6.90 2 4.00 2.40 4.00 5.00 4 4.00 1.70 4.00 4.00 Required: A. What is the total of the dividends per share that the stockholders will receive over the full five year period? B. If investors see no difference in the risk between the two policies, and therefore apply a 9.4% discount rate to both policies, what is the present value of each dividend stream? C. Suppose investors see Policy #2 as the riskier of the two, and they therefore apply a 9.4% discount rate to Policy #1 and a 12% discount rate to Policy #2. Under this scenario, what is the present value of each dividend stream? D. What conclusions can be drawn from this exercise?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose you are thinking of purchasing the SunStar’s common stock today. If you expect SunStar to pay $0.80 dividend at the end of year one and $1.6 dividend at the end of year two and you believe that you can sell the stock for $15 at that time. If you required return on this investment is 10%, how much will you be willing to pay for the stock? a. $13.95 b. $14.44 c. 14.19 d. $15.51
A company is considering the following two dividend policies for the next five years. Year Policy #1 Policy #2 4.00 6.90 2 4.00 2.40 4.00 5.00 4 4.00 1.70 4.00 4.00 Required: A. What is the total of the dividends per share that the stockholders will receive over the full five year period? B. If investors see no difference in the risk between the two policies, and therefore apply a 9.4% discount rate to both policies, what is the present value of each dividend stream? C. Suppose investors see Policy #2 as the riskier of the two, and they therefore apply a 9.4% discount rate to Policy #1 and a 12% discount rate to Policy #2. Under this scenario, what is the present value of each dividend stream? D. What conclusions can be drawn from this exercise? A Policy #1 Policy #2 Year 1. 2 3 4 Total over five years B Policy #1 9.40% Year Cash Flow PV Factor Present value Present value Policy #2 9.40% Cash Flow PV Factor Present value Year 1. 3 4 5 Present value Policy #1 9.40% Year Cash Flow PV…
Crystal Glass recently paid $3.60 as an annual dividend. Future dividends are projected at $3.80, $4.10, and $4.25 over the next 3 years, respectively. Afterwards, the dividend is expected to increase by 3.25 percent annually. What is one share of this stock worth to you currently if you require a 12.5 percent rate of return on similar investments? Group of answer choices $35.67 $40.11 $42.92 $53.66
Additional Activities Perform what is being asked in the following: 1. What will you pay today for a stock that is expected to make a P 45.00 dividend in one year if the expected dividend rate is 5% and you require a 12% return on your investment? 2. XYZ Company's preferred stock is selling for P 60.00 a share. If the required return is 8%, what will the dividend be two years from now? 3. Your broker is trying to sell you a stock with a current market price of P 2,160.00 The stock's last dividend was P 53.25, and earnings and dividends are expected to increase at a constant growth rate of 10%. Is the stock fairly valued if the return is 13%? Explain why or why not.
EMKA corporation is going to pay a dividend of $1.5, $2, and $2.5 each year for the next three years. Afterwards, it is planing to increas the dividends at a constant rate of 10% indifinitely. How much should the stock be sold for if the required rate of return is 12%? Select one: a.$104.17 b.$102.59 c.$100.01 d.$105.64
2. Answer both questions: a. You purchase 100 shares of stock for $40 a share. The stock pays a $2 per share dividend at year-end. What is the rate of return on your investment if the year-end stock prices turn out to be $38, $40, and $42? What is your real (inflation-adjusted) rate of return in each case, assuming an inflation rate of 3%? b. Consider the following information on the returns on stock and bond investment. Scenario Profitability Stocks Bonds Recession .2 -5% +14% Normal Economy .6 +15% +8% Boom .2 +25% +4% i) Calculate the expected rate of return and standard deviation in each investment. ii) Do your results support or contradict the historical record on the relationship between risk and return in the financial market in both Canada and the United States? iii) Which investment would you prefer? Explain your answer.
In doing a five-year analysis of future dividends, the Dawson Corporation is considering the following two plans. The values represent dividends per share. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Plan A Plan B 1 $ 1.80 $ 0.50 2 1.80 2.20 3 1.80 0.20 4 2.10 4.00 5 2.10 1.40 a. How much in total dividends per share will be paid under each plan over five years? (Do not round intermediate calculations and round your answers to 2 decimal places.) b-1. Mr. Bright, the Vice-President of Finance, suggests that stockholders often prefer a stable dividend policy to a highly variable one. He will assume that stockholders apply a lower discount rate to dividends that are stable. The discount rate to be used for Plan A is 10 percent; the discount rate for Plan B is 14 percent. Compute the present value of future dividends.…
A company has an issue of preferred stock outstanding that pays a $2.30 dividend every year in perpetuity. If this issue currently sells for $41.82 per share, what is the required rate of return? Please use a HP 10bii+ Financial Calculator
In doing a five-year analysis of future dividends, the Dawson Corporation is considering the following two plans. The values represent dividends per share. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Plan A Plan B 1 $ 1.30 $ 0.30 2 1.30 1.60 3 1.30 0.20 4 1.50 4.00 5 1.50 1.80 a. How much in total dividends per share will be paid under each plan over five years? (Do not round intermediate calculations and round your answers to 2 decimal places.) b-1. Mr. Bright, the Vice-President of Finance, suggests that stockholders often prefer a stable dividend policy to a highly variable one. He will assume that stockholders apply a lower discount rate to dividends that are stable. The discount rate to be used for Plan A is 11 percent; the discount rate for Plan B is 14 percent. Compute the present value of future dividends.…
2. Fey Fashions expects the following dividend pattern over the next seven years: 1. The company will then have a constant dividend of $1.90 forever. What is the stock's price today if an investor wants to earn a. 16%? b. 23%? a. What is the stock's price today if an investor wants to earn 16%? $ (Round to the nearest cent.) b. What is the stock's price today if an investor wants to earn 23%? $ (Round to the nearest cent.) 1: Data Table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 1 $1.00 Year 2 $1.09 Year 3 $1.19 Year 4 $1.30 Year 5 $1.42 Year 6 $1.55 Year 7 $1.69
Question 3. Consider the current price of a stock is $65.88. If dividends are expected to be $1 per share pays annually for the next five years, and the required return is 10%. (1) What should the price of the stock be in five years when you plan to sell? (2) If the dividend and required return remain the same, and the stock price is expected to increase by $1 five years from now, does the current stock price also increase by $1? Why or why not?
You expect that four years from today, Sanibel Corporation will begin its first-ever dividend of $2.00 a share, an amount that will be held constant. If you require a rate of return of 7%, what is the most that you should be willing to pay today for a share of Sanibel Corp's preferred stock? O A. $28.57 O B. $21.80 O C. $23.32 O D. $20.25

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