NEED HELP W/ E-I Beasley Ball Bearings paid a $4 dividend last year. The dividen

Question

NEED HELP W/ E-I

Beasley Ball Bearings paid a $4 dividend last year. The dividend is expected to grow at a constant rate of 7 percent over the next four years. The required rate of return is 20 percent (this will also serve as the discount rate in this problem). Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods a. Compute the anticipated value of the dividends for the next four years. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Anticipated Value D1 D2 D3 D4 4.28 4.58 4.90 5.24 b. Calculate the present value of each of the anticipated dividends at a discount rate of 20 percent. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) PV of Dividends D1 D2 D3 D4 Total 3.57 3.18 2.84 2.53 12.12 c. Compute the price of the stock at the end of the fourth year (P1). (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Stock price at Year 4 43.15 d. Calculate the present value of the year 4 stock price at a discount rate of 20 percent. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present value of Year 4 stock price S 20:81:

Explanation / Answer

e)

current value = PV of diidends + PV of 4th year terminal

current value = 12.12 + 20.81 = 32.93

f)

P0 = 4.58 / (20% - 7%) = 35.23

g)

company PE = 1.2*5 = 6

Price = PE * EPS

Price = 6*5.89 = 35.34

h)

part g price is higher by 0.11 (35.34 -35.23) than part f price

i)

1) D1 increase -> price increase

2) Ke increase -> price decrease

3) g increase -> price increase

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.