Goodman Industries Year Stock Price Dividend 2013 $25.88 $1.73 2012 $22.13 $1.59
ID: 2420468 • Letter: G
Question
Goodman Industries
Year Stock Price Dividend
2013 $25.88 $1.73
2012 $22.13 $1.59
2011 $24.75 $1.50
2010 $16.13 $1.43
2009 $17.06 $1.35
2008 $11.44 $1.28
Landry Incorporated
Year Stock Price Dividend
2013 $73.13 $4.50
2012 $78.45 $4.35
2011 $73.13 $4.13
2010 $85.88 $3.75
2009 $90.00 $3.38
2008 $83.63 $3.00
Market Index:
Year Includes Dividends
2013 17495.97
2012 13178.55
2011 130919.97
2010 9651.05
2009 8403.42
2008 7058.96
4: Assume that Goodman Industries’ stock has a required return of 13%. You will use this required return rate to discount the dividends calculated earlier. If you plan to buy the stock, hold it for 3 years, and then sell it for $27.05, what is the most you should pay for it?
Explanation / Answer
4. discounting rate is 13%
growth rate of dividend is taken at an average rate of 6.21% based on the average of past 6 years.
so,
dividend for 2014 is 1.73*1.0621 = 1.84
for 2015 is 1.84*1.0621 = 1.95
for 2016 is 1.95*1.0621 = 2.07
and if I buy the stock @ current price of $25.88 and plan to sell it @ $27.05 in 2016 the the price I should pay now is:
present value of all future inflow:
2014 $1.84*present value factor @13%(.88)= $1.64
2015 $1.95*.78 = $ 1.52
2016 $(2.07+27.05)*.69 = $20.09
The most i should pay for the stock is = 1.64+1.52+20.09 = $23.25
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