Horse and Buggy Inc. is in a declining industry. Sales, earnings, and dividends

ID: 2647204 • Letter: H

Question

Horse and Buggy Inc. is in a declining industry. Sales, earnings, and dividends are all shrinking at a rate of 6% per year.

If r = 10% and DIV1 = $8, what is the value of a share? (Do not round intermediate calculations.)

What price do you forecast for the stock next year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

What is the expected rate of return on the stock? (Do not round intermediate calculations.)

Horse and Buggy Inc. is in a declining industry. Sales, earnings, and dividends are all shrinking at a rate of 6% per year.

If r = 10% and DIV1 = $8, what is the value of a share? (Do not round intermediate calculations.)

Value of a share = Expected Dividend/(Required Rate - Growth rate)

Value of a share = 8/(10% - (-6%))

Value of a share = $ 50

What price do you forecast for the stock next year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Stock Price Next Year = 50*(1-6%)

Stock Price Next Year = 47

What is the expected rate of return on the stock? (Do not round intermediate calculations.)

Expected rate of return = 10% ( Given)

If r = 10% and DIV1 = $8, what is the value of a share? (Do not round intermediate calculations.)

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