# Equities Q 2

The XX Company paid a \$1 dividend last year. The company is expecting dividends to grow at a 6% rate into the future. What is the value of this stock if an investor requires a 15% rate of return on stocks of this risk class? A) 12.78 B) 12.48 C) 11.78 Eisen Company paid a \$1 dividend last year and is expected to continue to pay out 30% of its earnings as dividends in the foreseeable future. The firm’s ROE 10%. What is the value of Eisen stock if you require a 13% return on stocks in Eisen’s risk class? A) 19.56 B) 17.83 C) 19.08

c - 1(1+0.06) / (0.15 - 0.06) = 11.7777777777 b - 1(1+0.07) / (0.13 - 0.07) = 17.83

1st- I use div of 1 x (1.06)^2=1.1236/ (.09)= 12.48 2nd-Again( I use 1.07)^2/ (.06)=19.08 Since \$1 is last yr, should you grow it twice to get next yr’s dividend?

adee1031 Wrote: ------------------------------------------------------- > 1st- I use div of 1 x (1.06)^2=1.1236/ (.09)= > 12.48 > 2nd-Again( I use 1.07)^2/ (.06)=19.08 > > Since \$1 is last yr, should you grow it twice to > get next yr’s dividend? I don’t think it’s accounted for in that manner. To me the “last year” reads the same as just paid. Just grow the dividends/earnings for one period. C B

Chuckrox8 Wrote: ------------------------------------------------------- > adee1031 Wrote: > -------------------------------------------------- > ----- > > 1st- I use div of 1 x (1.06)^2=1.1236/ (.09)= > > 12.48 > > 2nd-Again( I use 1.07)^2/ (.06)=19.08 > > > > Since \$1 is last yr, should you grow it twice > to > > get next yr’s dividend? > > > I don’t think it’s accounted for in that manner. > To me the “last year” reads the same as just paid. > Just grow the dividends/earnings for one period. > > > C > B Fantastic question and answer. I used to think you have to grow the div twice if its says dividend was paid last year. Are there any instances wher eyou will have to grow it twice to next yr’s dividend if the last dividend paid was last year?