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The next dividend payment by ASAP, Inc., will be $2.00 per share. The dividends are anticipated to maintain a 4.00% growth rate, forever. If ASAP stock currently sells for $14.75 per share, what is the required return?

Answers

Answer 1

Answer:

r = 0.175593 or 17.5593% rounded off to 17.56%

Explanation:

Using the constant growth model of dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,

P0 = D1 / (r - g)

Where,

D1 is dividend expected for the next period /year g is the growth rate r is the required rate of return  

Plugging in the values for D1, P0 and g, we can calculate the value of r to be,

14.75 = 2 / (r - 0.04)

14.75 * (r - 0.04)  =  2

14.75r - 0.59  =  2

14.75r = 2 + 0.59

r = 2.59  /  14.75

r = 0.175593 or 17.5593% rounded off to 17.56%

Related Questions

A part of a business's message that distinguishes it from all its competitors
is referred to as what?
A. Cultural sensitivity
B. Unique selling proposition
C. Superiority clause
D. Isolation technique

Answers

Answer:

Unique selling proposition.

Answer:b

Explanation:

Project L costs $70,000, its expected cash inflows are $16,000 per year for 8 years, and its WACC is 13%. What is the project's discounted payback?

Answers

Answer:

6.89 years

Explanation:

The discounted payback period can be calculated by using the following table

Year        Cash flows                PV(13%)             Cumulative Cash flows

0               (70000)                    (70000)                           (70000)

1           16000                    14159.29                       (55840.71)

2           16000                    12530.35                      (43310.36)

3           16000                       11088.80                      (32221.56)

4           16000                        9813.10                        (22408.46)

5           16000                        8684.16                        (13724.30)

6           16000                         7685.10                       (6039.20)

7           16000                          6800.97                         761.77

8           16000                          6018.56                       6780.33

Discounted Payback = 6 years + 6039/ 6801

Discounted Payback = 6.89 years

Prices for airline tickets change on average about once per month. This would suggest that airline ticket prices are

Answers

Answer:

relatively flexible

Explanation:

Flexible pricing is when there is room for negotiation of prices of a product between the buyers and sellers.

So the price is prone to change in short amount of time.

Sticky price on the other hand tends to be non negotiable and the does not change over time.in the given scenario prices for airline tickets change on average about once per month.

So there is constant change of the price every month. Meaning the buyer can convince the seller to change his offering price.

The price is relatively flexible

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