Respuesta :
Answer:
a.
1st $5.43
2nd $5.89
3rd $6.39
4th $6.93
5th $7.52
6th $7.81
b.
$75.85
Explanation:
Dividend is the payment to the stockholders out of earning of the company. Companies have a dividend policy which determine the future dividend payments.
Dividend of each year can be calculated by using the growth rate as a discount in the compounding formula.
Dividend Payment
First year = $5 x ( 1 + 8.5% )^1 = $5.43
Second year = $5 x ( 1 + 8.5% )^2 = $5.89
Third year = $5 x ( 1 + 8.5% )^3 = $6.39
Fourth year = $5 x ( 1 + 8.5% )^4 = $6.93
Fifth year =$5 x ( 1 + 8.5% )^5 = $7.52
Sixth year = $7.52 x ( 1 + 3.8% )^1 = $7.81
b.
Intrinsic value of the stock is the present value of all the associated dividends
We need to calculate the present value of all the dividend payment.
First year = $5.43 x ( 1 + 11.5% )^-1 = $4.87
Second year = $5.89 x ( 1 + 11.5% )^-2 = $4.74
Third year = $6.39 x ( 1 + 11.5% )^-3 = $4.61
Fourth year = $6.93 x ( 1 + 11.5% )^-4 = $4.48
Fifth year = $7.52 x ( 1 + 11.5% )^-5 = $4.36
After fifth year the dividend will be discounted as follow
PV of dividend after fifth year = [ $7.81 / (11.5% - 3.8%) ] x [ (1+11.5%)^-6 ] = $52.79
Intrinsic Value of Stock = Sum of PV of all dividends = $4.87 + $4.74 + $4.61 + $4.48 + $4.36 + $52.79 = $75.85
The answers can be calculated as follows:
a. What will be the dividend paid out for the next six years?
The dividend for each year can be calculated using the following formula:
Current year dividend = Previous year dividend * (100% + Dividend growth rate in the year) ………….. (1)
Therefore, we have:
Year 1 dividend = Last year dividend * (100% + Dividend growth rate in year 1) = $5 * (100% + 8.5%) = $5.43
Year 2 dividend = Year 1 dividend * (100% + Dividend growth rate in year 2) = $5.43 * (100% + 8.5%) = $5.89
Year 3 dividend = Year 2 dividend * (100% + Dividend growth rate in year 3) = $5.89 * (100% + 8.5%) = $6.39
Year 4 dividend = Year 3 dividend * (100% + Dividend growth rate in year 4) = $6.39 * (100% + 8.5%) = $6.93
Year 5 dividend = Year 4 dividend * (100% + Dividend growth rate in year 5) = $6.93 * (100% + 8.5%) = $7.52
Year 6 dividend = Year 5 dividend * (100% + Dividend growth rate in year 6) = $7.52 * (100% + 3.8%) = $7.81
b. What is the intrinsic value of Indigo’s stock?
Firstly, we have the following:
r = Required rate of return = 11.5%
Terminal growth rate = 3.8%
Terminal value = Year 5 dividend*(100% + Terminal growth rate) / (r - Terminal growth rate) = $7.52 * (100% + 3.8%) / (11.5% - 3.8%) = $101.37
Present value of future dividend = Dividend in a year /(1+r)^Number of years
The intrinsic value can be described as the present value of future dividends (in this case, dividend for years 1-5) plus the present value of terminal value beyond the terminal year (in this case, year 5).
Therefore, we have
Intrinsic value of Indigo’s stock = [Year 1 dividend / (1 + r)^1] + [Year 2 dividend / (1 + r)^2] + [Year 3 dividend / (1 + r)^3] + [Year 4 dividend / (1 + r)^4] + [Year 5 dividend / (1 + r)^5] + [Terminal value / (1 + r)^5]
Intrinsic value of Indigo’s stock = [5.43/(1+11.5%)^1] + [5.89/(1+11.5%)^2] + [6.39/(1+11.5%)^3] + [6.93/(1+11.5%)^4] + [7.52/(1+11.5%)^5] + [$101.37/(1+11.5%)^5]
Intrinsic value of Indigo’s stock = $81.89
Learn more here: https://brainly.com/question/23639317.
