Nguyen Khanh Son- Finance-chapter 9

# Nguyen Khanh Son- Finance-chapter 9 - Name: Nguyen Khanh...

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Name: Nguyen Khanh Son Class: Batch 2 Chapter 9 Questions: 9.3 It depends on the company has good investment opportunities in the future or not, if the company has good investment opportunities in the future, the company should retain more earnings (pay less current dividends). 9-4 When two investors agree to buy GE’s stock with the same dividend and grow rate We have D 01 = D 1 /(1+g) 2 and D 02 = D 1 /(1+g) 10 When number of years increase, D 0 will decrease so apply this formula: P = D/r ; P also decrease so the investor hold GE’s stock should buy stocks with lower prices Problems: 9-1 Dividend = D 0 = \$ 1.5 g 1 = 7% N = 3 years g 2 = 5% We have: D 0 = \$1.5 D 1 = D 0 (1+g 1 ) = 1.5 (1+ 0.07) = 1.605 D 2 = D 0 (1+g 1 ) 2 = 1.5 (1+ 0.07) 2 = 1.71735 D 3 = D 0 (1+g 1 ) 3 = 1.5 (1+ 0.07) 3 = 1.8376 D 4 = D 0 (1+g 2 ) = 1.5 (1+ 0.07) = 1.9294 D 5 = D 0 (1+g 2 ) 2 = 1.5 (1+ 0.07) 2 = 2.0259 9-2 D 1 = \$ 0.5 g = 7% r = 15% We have: P 0 = D 1 / r-g = 0.5 / (0.15-0.07) = \$ 6.25 9-4 D0 = \$ 1.25 g 1 = 20% N = 2 years

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## This note was uploaded on 11/23/2011 for the course MANAGEMENT 101 taught by Professor Nguyen during the Spring '11 term at Troy.

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Nguyen Khanh Son- Finance-chapter 9 - Name: Nguyen Khanh...

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