An analyst uses a two-stage variable growth model to estimate the value of Old Maid Company's common stock.The most recent annual dividend paid by the company was $3 per share. The analyst expects dividends to increase8% per year for the next 3 years and then drop to 4% starting in year 4 and remain stable for the foreseable future.The required rate of return used for the analysis is 10%a) What are the expected dividends for the next 4 years?b) What is the value of the stock attributable to the first 3 years of dividends? (use NPV function)c) What is the value of the stock at the end of year 3? (use constant-growth model)d) What is the value of the stock attributable to years 4 and beyond? (use pv function, where answer to part C is the fv)e) What is the total value of the stock?Question 5ayear 1year 2year 3year 4Question 5b Question 5c Question 5d Question 5e

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Asked Dec 10, 2019
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An analyst uses a two-stage variable growth model to estimate the value of Old Maid Company's common stock.
The most recent annual dividend paid by the company was $3 per share. The analyst expects dividends to increase
8% per year for the next 3 years and then drop to 4% starting in year 4 and remain stable for the foreseable future.
The required rate of return used for the analysis is 10%
a) What are the expected dividends for the next 4 years?
b) What is the value of the stock attributable to the first 3 years of dividends? (use NPV function)
c) What is the value of the stock at the end of year 3? (use constant-growth model)
d) What is the value of the stock attributable to years 4 and beyond? (use pv function, where answer to part C is the fv)
e) What is the total value of the stock?
Question 5a
year 1
year 2
year 3
year 4
Question 5b Question 5c Question 5d Question 5e
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An analyst uses a two-stage variable growth model to estimate the value of Old Maid Company's common stock. The most recent annual dividend paid by the company was $3 per share. The analyst expects dividends to increase 8% per year for the next 3 years and then drop to 4% starting in year 4 and remain stable for the foreseable future. The required rate of return used for the analysis is 10% a) What are the expected dividends for the next 4 years? b) What is the value of the stock attributable to the first 3 years of dividends? (use NPV function) c) What is the value of the stock at the end of year 3? (use constant-growth model) d) What is the value of the stock attributable to years 4 and beyond? (use pv function, where answer to part C is the fv) e) What is the total value of the stock? Question 5a year 1 year 2 year 3 year 4 Question 5b Question 5c Question 5d Question 5e

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Expert Answer

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“Hi, as per our policy we will answer the first question. Kindly repost the remaining questions separately in order to be answered”

Step 2

a)

 Computation of expected dividends for the next 4 years:

 Excel sp...

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D 1 Year Dividends Factor @ 10% Present value $3.00 1.0000 $3.00 2 0 $3.24 0.9091 $2.95 2 $3.50 0.8264 $2.89 4 3 $3.78 0.7513 $2.84 4 $3.93 0.6830 $2.68 6.

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