Business, 05.07.2021 19:50 Trendymwah9738

Thirsty Cactus Corp. just paid a dividend of $1.50 per share. The dividends are expected to grow at 25 percent for the next 9 years and then level off to a 5 percent growth rate indefinitely. If the required return is 13 percent, what is the price of the stock today?

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Answer from: naomicervero

$143.40

Explanation:

The dividend for the next year = $\text{ current year dividend} \times (1 + \text{growth})$

= $ 1.50 x (1 + 0.13)

= 1.50 x 1.30

= $ 1.95

The dividend in the second year = 1.95 x 1.30

= $ 2.54

Similarly, the dividend for the year 9 is = $1.50 \times (1.30)^9$

= $ 15.91

The value of the stock at the end of year 9,

$=\frac{\text{Dividend of year 10}}{\text{(Required rate of return - Growth rate)}}$

$=\frac{15.91\times1.05}{0.13-0.05}$

= $ 208.81

The present value factor $=\frac{1}{(1+r)^n}$

where, r = rate of interest = 13% = 0.13

n = years (1 to 9)

So, the present value factor for the 2nd year is $=\frac{1}{(1+0.13)^2}$

$=\frac{1}{(1.13)^2}$

$=\frac{1}{1.2769}$

= 0.783147

Therefore, the price of the stock today is calculated as to be $ 143.40

Answer from: Quest

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

Answer from: Quest

answer; /// i believe the correct answer is first in, first out(fifo); //

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