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Question Beasley Ball Bearings paid a dividend of $4 last year. The dividend is expected to grow...

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Beasley Ball Bearings paid a dividend of $4 last year. The dividend is expected to grow at a constant rate of 3 percent over the next five years. The required rate of return is 13 percent (this will also serve as the discount rate in this problem).

a. Compute the anticipated value of the dividends for the next four years. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Anticipated Value:

D1 $

D2 $

D3 $

D4 $

b. Calculate the present value of each of the anticipated dividends at a discount rate of 13 percent. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) PV of Dividends:

D1 $

D2

D3

D4 Total $

Constant growth in dividend:

It is assumed that dividend tends to increase over time because business firms usually grow over time. If the growth of dividend is at constant compound rate then :

Dt = D0{eq}(1 + G)^{t} {/eq}

Valuation of share where dividend increase at a constant, compound rate is given as

P0 =D1/(K-g)

K= Rate of return

g= Growth rate

Answer and Explanation:

a. Compute the anticipated value of the dividends for the next four years. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Anticipated Value:

D1 = D(1+g)= 4(1.03) = $4.12

D2 =D(1+g)2=4{eq}1.03^{2} {/eq} = $4.24

D3= D(1+g)3=4{eq}1.03^{3}{/eq}=$4.37

D4 $ =D(1+g)4=4{eq}1.03^{4} {/eq} =$4.50

b. Calculate the present value of each of the anticipated dividends at a discount rate of 13 percent. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) PV of Dividends:

D1 =$4.12/1.13 = $3.65

D2 =4.24/{eq}1.13^{2} {/eq} =$3.31

D3 =4.37/{eq}1.13^{3} {/eq} =$3.01

D4 =$4.50/ ${eq}1.13^{4} {/eq} = $2.74


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