StudentShare solutions

# Question answer - Essay Example

## Extract of sample Question answer

The details mentioned in the data require that the long run rate of return must be calculated using the formula of present value of dividend using Dividend Discount Model. . PV GROWING PERPETUITY (DIVIDEND DISCOUNT MODEL) Data: Present Value of Share PV O USD.150 Dividend for the First Year D1 USD. 7 Growth g 0.04 Rate of return r ? FORMULA REARRANGED In the above provided case since the value of price was already provided, the formula for such payments has been manipulated and rate of return has been evaluated. The formula for DDM for the current price of shares is rearranged for the calculation of rate of the return. Applying this arrangement, the long term rate of return for the company is as follows: r 0.086667 r 8.67% Hence, the expected long run rate of return is 8.67%.This refers that when company is paying 60 percent of the earning as dividend to shareholders and investors are pricing the share at USD.150, the required rate of return in the long terms is 6.67%. This percentage assumes that price is based on incorporating all information about the company. The formula can be summarized as the ratio of the cash flows of dividends received in the future periods by the net difference of the discount rate and the growth rate. This formula is developed on the concept that current price of stocks are a series of payments which grows as dividend perpetually at a constant rate. . The formula assumes that the payments of dividends are received for an infinite period at constant growth rate. For the calculation of Present value it is very important that the discount rate used for the calculation is higher than the growth rate.. PART B Dividend discount model assumes that the price of stocks follows constant growth indefinitely across the life of the company (McLaney, 2009). However, on actual grounds the growth of the company varies from time to time. For instance, in the above case, The Company aims to expand and therefore, therefore, has changed the dividend policy across for five years (Ross, Westerfield, and Jordan, 2009). In such case, two stage dividend discount model is used to evaluate the price of the stock in current year. In such a system of two staged growth, the price of stocks are measured by calculating the present value of dividend streams by discounting it with required rate of return. For the second staged growth, the price of a stock is calculated for the year in which growth has changed and is then discounted to current year (Gitman, 2003). In the final stage, the present values of two staged dividend growth are combined. The following formula is used for such cases: Following this, procedure the price of stock in second case is USD. 74.99. Given below is the calculation for the case: PART B DIVIDEND CALCULATION STAGE ONE STAGE 2 YEAR 1 2 3 4 5 6 7 Dividend MENTIONED IN CASE ONE 7             earning (calculated using Dividend Information of Case (1) and then growth applied \$ 11.67 \$ 12.13 \$ 12.62 \$ 13.12 \$ 13.65 \$ 14.19 \$ 14.76 Reinvested \$ 10.50 \$ 10.92 \$ 11.36 \$ 11.81 \$ 12.28 \$ 4.26               DIVIDEND WITH NEW % OF GROWTH Dividend \$ 1.17 \$ 1.21 \$ 1.26 \$ 1.31 \$ 1.36 \$ 9.94 \$ 10.33                 The above table determines that to get base year information, it is assumed that the earning of company for year one remains same as it is provided in the case. Hence, price is as follows: PRICE                   PV: dividend 1 / (1-R)^t PV: dividend 7 / (r-g) ...Show more
Cite this document
• APA
• MLA
• CHICAGO
(“Question answer Essay Example | Topics and Well Written Essays - 750 words - 1”, n.d.)
(Question Answer Essay Example | Topics and Well Written Essays - 750 Words - 1)
“Question Answer Essay Example | Topics and Well Written Essays - 750 Words - 1”, n.d. https://studentshare.net/finance-accounting/103004-question-answer.

## Summary

ELGAR GREEN, INC. PART A Elgar Green, Inc. is a business operating in the Burwood’s area. It converts the green waste into fertilizers. This business is not very profitable so the state is providing subsidy to the Burwood City Commission. The state requires Elgar Green to generate yield on equity of 12%…
Save Your Time for More Important Things
Let us write or edit the essay on your topic
with a personal 20% discount.
Grab the best paper

### Check these samples - they also fit your topic

There is no single recruitment strategy that is conclusively the best. An example to highlight the implications of a good recruitment strategy can be seen from the point of a company considering how to recruit staff based on the mobility of both the company’s operations and the mobility of the workforce in the market.
3 pages (750 words) Essay
The joint venture entered by both the organisations provided that any dispute that may arise would be resolved by arbitration. Moreover, the law of State X affirms that all the foreign investment agreements need to be sanctioned by the minister of finance.
8 pages (2000 words) Essay
According to the question answer the question
Both agree that education should be made in a way that it affects the thinking of those involved positively. The difference is that Jensen believes that standardization of
3 pages (750 words) Essay
The state entails an absolute isolation to personal desires with the aim to relive the mind of other mental dilutions. This entails free will of the mind and body in relation to attaining uttermost
1 pages (250 words) Essay
In fact, linguistic is a tool employed in the formulation and comprehension of messages, with critical focus on various changes that occur to the language
5 pages (1250 words) Essay
Moreover, as we know women are better in shopping, they purchase 85% of the household items (Hartmann and Klapper). However, at the same time not all products being advertised are like by women some are liked by men for
2 pages (500 words) Essay
But while reading our message, our reader cannot see us. There must not be a noise that revokes the listener or reader to understand our meaning. Answer: Neither choosing to listen nor choosing to speak is easy task. Both
1 pages (250 words) Essay
For instance, human activity and technological advancement have been the oldest records of human development. Pebble tools were crude tools that consisted of a pebble stone chopped into a rough cutting edge on one end and have been discovered in Africa. The first
4 pages (1000 words) Essay
It was created by the National Security Act. After World War II, tension between the United States and the Soviet Union reached a state of concern and policy makers therefore felt that there was need to establish a council that would handle
3 pages (750 words) Essay
In fact, using them synonymously leads to confusion and misconception specially when talking about the hiring of the employees and working as a line manager. One must avoid all such mistakes so that there is no ambiguity left in the decisions and
7 pages (1750 words) Essay
Click to create a comment
+16312120006