Respuesta :
Answer:
e) $23.89
Explanation:
The question is to determine the value of Canine Crates stock today based on a return rate of 13%
The first step is to determine the yearly value based on the dividend for three years as follows
D1= The annual dividend x 2 ( since Canine Crates plans to double the amount each year for three years
D1= $0.45 x 2 = $0.9
D2= $0.90 x 2 = $1.80
D3= $1.80 x 2 = $3.60
Based on these calculations, we calculate the value of the stock by adding the present values of the dividend of each year.
This is based on the following formula
Dividend per year / (1+r)∧n
= Dividend per year
r = required rate
n= period
Value of the stock = $0.9 / (1.13) + $1.80 / (1.13)∧2 + $3.60/ (1.13)∧3
The value of the stock = $23.89
Answer:
The correct answer is E ,$23.89
Explanation:
The value of the stock today can be calculated by discounting all future dividends payable by the stock with $0.9 in year 1, $1.8 in year 2,$3.6 in year 3 and in perpetuity.
In knowing the dividends in perpetuity, the $3.6 is divided by 13% cost of capital.
It is also important to know that the discounting factor in perpetuity is the same as year 3 discounting factor.
Years Dividends DCF=(1+r)^n PV
1 0.9 0.885 0.80
2 1.8 0.783 1.41
3 3.6 0.693 2.49
4 27.69 0.693 19.19
total of present values 23.89
Since $0.45 is just been paid, next year dividend will be doubled and so on.
