Questions
MCD2170 - T3 - 2025 Week 7 Post class homework
Multiple fill-in-the-blank
Question textThe ordinary shares of NCP are expected to pay $1.25 per share in dividends at the end of this year. Dividends are expected to grow at an annual rate of 9.80% forever.Note: for calculation questions in the following parts, round the answers to 2 decimal placesa) If NCP's current market price is $30 per share, the share's expected rate of return is Answer 1 Question 5[input]%b) If your required rate of return is 15% p.a., the value of the share for you is $Answer 2 Question 5[input]c) You should Answer 3 Question 5[select: , not buy, buy] the share because the expected rate of return is Answer 4 Question 5[select: , less, more] than your required rate of return or the value of the share is Answer 5 Question 5[select: , higher, lower] than the current market price.
View Explanation
Verified Answer
Please login to view
Step-by-Step Analysis
Let's work through each part step by step and evaluate all options before confirming the conclusions.
Option a (the expected rate of return when price is $30): The stock pays D1 = $1.25 at the end of this year and dividends are expected to grow at g = 9.80% forever. With a current price P0 = $30, the Gordon growth model implies the required formula for the expected rate of return is r = (D1 / P0) + g. Compute D1 / P0 = 1.25 / 30 = 0.041666..., which is 4.1667%. Add the g......Login to view full explanationLog in for full answers
We've collected over 50,000 authentic exam questions and detailed explanations from around the globe. Log in now and get instant access to the answers!
Similar Questions
You are evaluating the purchase of Somners Resources' ordinary shares that just paid a dividend of $1.80. You expect the dividend to grow at a rate of 12%, indefinitely. You estimate that a required rate of return of 17.5% will be adequate compensation for this investment. Assuming that your analysis is correct, what is the highest price you would be willing to pay per share if you were to purchase them today?
You are evaluating Stock ABC, which has recently paid an annual dividend of $5.75 per share. The company is expected to experience significant growth, with dividends growing at a rate of 10% annually for the next 5 years. After this high-growth period, the dividend growth rate is expected to slow down to 6% indefinitely. Investors require a 10% return on this stock. Given this information, what is the estimated value of one share of Stock ABC?
ABC, Inc. just paid a dividend of $2. ABC expects dividends to grow at 10% annually forever. The return on shares like ABC, Inc. is typically around 12%. What is the most you would pay for ABC’s share?
ALP’s most recent dividend was $2.00 per share and is selling today for $70. The dividend is expected to grow at 7% per year for the foreseeable future. Should you purchase the share if the market return is 10% on investments with comparable risk?
More Practical Tools for Students Powered by AI Study Helper
Making Your Study Simpler
Join us and instantly unlock extensive past papers & exclusive solutions to get a head start on your studies!