Finance 379 mcq | Business & Finance homework help
For Royal Electric, we know that last year’s dividend was $2, so in year 1 this would remain unchanged. To calculate the dividend for years 2 and 3, we first need to determine the required return rate. As stated in the question, common stockholders require a 12 percent return which can be used as our required rate of return (r). The formula for calculating future dividends is D1 = Do x (1 + g), where Do refers to current period’s dividend and g is growth rate.
Using this information , we can calculate values of respective dividends as: Year 1 – $2; Year 2 – $2.10 ($2x(1+0.05)); Year 3 –$2.2025 ($2x(1+0.05)^2).
In conclusion , DDM provides us with valuable tool when it comes gauging potential returns from investing into particular asset given certain conditions thus allowing investors make informed decisions about how proceed given set circumstances . Moreover , understanding such concepts helps traders understand relationship between different factors driving market prices thereby enabling them predict behavior more accurately all while potentially increasing their own profits going forward.