Hi-Tec is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 15% a year for the next two years and then decreasing the growth rate to 5%.

Hi-Tec, a new firm in a rapidly growing industry, plans to increase its annual dividend by 15% for the next two years and then decrease the growth rate to 5%.

Explanation:

Hi-Tec, a new firm in a rapidly growing industry, is planning to increase its annual dividend by 15% for the next two years and then decrease the growth rate to 5%.

The dividend growth rate is a measure of the annualized percentage increase in a company's dividend payments. It indicates the rate at which the company's dividend payments are expected to grow over time.

Increasing the annual dividend by 15% for the next two years shows Hi-Tec's intention to provide higher returns to its shareholders. This can be seen as a positive signal by investors, as it demonstrates the company's confidence in its future profitability and cash flow.

After the initial two years of higher dividend growth, Hi-Tec plans to decrease the growth rate to 5%. This could be due to various factors such as changes in the company's financial performance, market conditions, or management's dividend policy.

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pratiksha9846 pratiksha9846 · Answer 2 · 2023-08-26T11:43:57-04:00

Hi- Tec is a new firm in a rapidly growing industry, The company is planning on increasing its annual dividend by 15 w a year for the next two years and then decreasing the growth rate to 5% per year after. The company just paid its annual dividend in the amount of $1.00 per share. $29.56 is the current value of one share if the required rate of return is 8.60%

Therefore, the correct answer is a- $29.56.

To calculate the current value of one share using the dividend discount model (DDM), we need to calculate the present value of the expected future dividends. The formula for DDM is:

[tex]Value of Share = \frac{D_1}{(1 + r)^1} + \frac{D_2}{(1 + r)^2} + \frac{D_3}{(1 + r)^3} + \ldots[/tex]

Where:

D1 = Dividend in Year 1 = $1.00 (given)

D2 = Dividend in Year 2 = $1.00 * (1 + 0.15) = $1.15

D3= Dividend in Year 3 = $1.15 * (1 + 0.15) = $1.3225 (using 5% growth rate)

r = Required rate of return = 8.60% = 0.086

Now plug the values into the formula:

[tex]Value of Share = \frac{1.00} {(1 + 0.086)^1} + \frac{1.15} {(1 + 0.086)^2} + \frac{1.3225}{(1 + 0.086)^3}[/tex]

After calculations, the approximate value of the share is $29.56.

Therefore, the correct answer is a- $29.56.

Hi- Tec is a new firm in a rapidly growing industry, The company is planning on increasing its annual dividend by 15 w a year for the next two years and then decreasing the growth rate to 5% per year after. The company just paid its annual dividend in the amount of $1.00 per share . What is the current value of one share if the required rate of return is 8.60%?

a- $29.56

b- $34.89

C- $33.74

D- $41.01

E- $46.45

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