Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $9.90, but management expects to reduce the payout by 5 percent per year indefinitely. If you require a return of 14 percent on this stock, what will you pay for a share today?

ANSWER

Price =$49.5

EXPLANATION

Using the dividend valuation model, the price of a stock is the present value of expected future dividend discounted at the required rate of return.

Price  = Do (1+g)/Ke-g)

This model can be modified to accommodate a decline rate in dividend .

as follows:

Price = Do (1-g)/ (Ke - -g)

Price = 9.90 × (1-0.05)/(0.14- - 0.05)

Price = 9.90 × (1-0.05)/(0.14+0.05)

Price =$49.5

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know

answer; whoever is willing and able to pay the price;