West Tool Company is expectedto pay a dividend of $1.0 in Year1 and $1.3 in Year 2. Analystsexpect the price of West ToolCompany shares to be $18 twoyears from now. What is theintrinsic value of West ToolCompany stock if the marketcapitalization rate of thecompany is 12% ? Round youranswer to two decimal placesand enter without the dollar sign.

Dividend in year 1 = $1.0Dividend in year 2 = $1.3Capitalization rate = 12%Share price two years…

Answered: West Tool Company is expected to pay a…

West Tool Company is expected to pay a dividend of $1.0 in Year 1 and $1.3 in Year 2. Analysts expect the price of West Tool

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Stock Yields

The stock yield is otherwise known as the dividend yield. The dividend yield is an annual payment of the stock dividends to the holder of a firm’s stock. The dividend yield is a financial ratio to measure the value of dividend payout every year for the relative stock price. The yield of a stock is usually shown in a percentage that discloses the expected future earnings from stock depending on the current stock price in the future. Stock yield will change depending on the market fluctuations and in accordance with the market fluctuations, the dividends will be increased or decreased by the firm.

Question

West Tool Company is expected
to pay a dividend of $1.0 in Year
1 and $1.3 in Year 2. Analysts
expect the price of West Tool
Company shares to be $18 two
years from now. What is the
intrinsic value of West Tool
Company stock if the market
capitalization rate of the
company is 12% ? Round your
answer to two decimal places
and enter without the dollar sign.

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