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Chrome File Edit View History Bookmarks People Window Help * us. 82% C Thu 6:12 PM Q connect 9 Horse And Buggy Inc. Is In A DX × già Secure https://newconnect.mheducation.com/flow/connect.html Chapter 7 Review Questions G Help Save & Exit Submit Saved Check my work 3 Rework Table 74 for horizon years 1, 2, 3, and 10, assuming that investors expect the dividend and the stock price to increase at only 6% a year and that each investor requires the same 12% expected return. Current dividends are $6.00. 10 points What value would Dritter place on the stock and what about Zehnte who has a 10-year horizon? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Skipped PV Dividends) PV (Terminal Value per Horizon (years) Price) Share eBook Print 10 Reference links Mc Graw Hill

Explanation / Answer

Price Per share = (Div1/Ke-G) Ke= Required rate of return, G= Growth rate

Future Dividend = Current dividend *(1.06) 6% is the growth rate of dividend

Present value of dividend = Present value factor * Dividend at the end of the year

Present value of Share = Present value factor * Price per share

Total present value = Present value of dividend+ present value of price per share

Years Dividend P.V.Factor P.V.divide Price per share P.V.Factor P.V.share price Total PV 1 6.36 0.943 5.99748 100 0.943 94.3 100 2 6.7416 0.89 6.000024 106 0.89 94.34 100 3 7.146096 0.84 6.002721 112.36 0.84 94.3824 100 4 7.574862 0.792 5.999291 119.1016 0.792 94.32847 100 5 8.029353 0.747 5.997927 126.2477 0.747 94.30703 100 6 8.511115 0.705 6.000336 133.8226 0.705 94.3449 100 7 9.021782 0.665 5.999485 141.8519 0.665 94.33152 100 8 9.563088 0.627 5.996056 150.363 0.627 94.27762 100 9 10.13687 0.592 6.001029 159.3848 0.592 94.35581 100 10 10.74509 0.558 5.995758 168.9479 0.558 94.27293 100

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