Business, 18.11.2020 17:30 trinitychavira0727

You are analyzing Jillian’s Jewelry (JJ) stock for a possible purchase. JJ just paid a dividend of $1.50 yesterday. You expect the dividend to grow at a rate of 6% per year for the next 3 years; if you buy the stock, you plan to hold it for 3 years and then sell it. A. What dividends do you expect for JJ stock over the next 3 years?

The correct answer is $1.79

B. JJ’s stock has a required return of 13% and so this is the rate you’ll use to discount dividends. Find the present value of the dividends stream; that is. Calculate the PV of D1, D2, and D3, and then sum these PVs.

The correct answer is $3.97

C. JJ stock should trade for $27.05 3 years from now (i. e you expect p3=$27.05) discounted at 13% rate, what is the present value of this expected future stock price? In other words, calculate the PV of $27.05

The correct answer is $18.74

D. If you plan to buy the stock, hold it for 3 years, and then sell it for $27.05, what is the most you should pay for it?

The correct answer is $22.71

E. Use the constant growth model to calculate the present value of this stock. Assume that g= 6% and is constant.

F. Is the value of this stock dependent on how long you plan to hold it? In other words, if you planned holding period were 2 years or 5 years rather than 3 years, would this affect the value of the stock today, p0? Explain your answer

Answers: 1

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You are analyzing Jillian’s Jewelry (JJ) stock for a possible purchase. JJ just paid a dividend of $...

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