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Jupiter

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tT
发表于 2011-7-11 19:42 | 只看该作者

WACC Calculation

solution, instead, someone
Can someone help me out and see if the solution key is wrong here.
Question:
Stock Price : 45
Last Year's Dividend: 5
Dividend Growth Rate: 8%
Cost of Debt: 9%
Tax: 35%
D/E: .4

A. 14.34
B. 15.96
C. 16.86

Solution Key B

When we use Dividend Growth model shouldn't we use D1 instead of D? So in this case D1 would be 5.832 then why is the answer B.
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LokiDog2

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2#
发表于 2011-7-11 19:42 | 只看该作者
D1 = 5*1.08

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koba

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3#
发表于 2011-7-11 19:42 | 只看该作者
We always use estimated Dividend for next year. Sometimes its given, sometimes you need to calculate it by formula: D1=D0(1+g)

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smartpants

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4#
发表于 2011-7-11 19:42 | 只看该作者
why is D1 5*1.08 though shouldn't it be 5*(1.08)^2 since Last year's dividend = D-1?

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pacmandefense

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5#
发表于 2011-7-11 19:42 | 只看该作者
No!
Last year's dividend is D0. You can also see D0 as today's dividend, the current dividend or the dividend just paid.

Answer: B.

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