Accounting Problem?

Question:

You own $100,000 worth of Smart Money stock. One year from now, you will receive a dividend of $2 per share. You will receive a $4 dividend two years from now. You will sell the stock for $50 per share three years from now. Dividends are taxed at the rate of 28 percent. Assume there is no capital gains tax. The required rate of return is 15 percent. How many shares of stock do you own?

Answer:
For a growth rate of 100% you cannot have a required rate of return of 15%, it should be higher than 15% even higher than 100%. Suppose if the required rate of return is 115%, then,
Po or price in year 0 = D1/Ks - g= 2/1.15 - 1 =
13.33
Number of shares in year zero = 100000/13.3=
=7502 shares. slightly less rounded to.
Taxes are not taken into consideration.

This is a math, not in investing question. Ask in the math & science or homework help section.

Assuming you're talking about a 15% total return:

Return = (50X +(6)(0.72)X)/100000 = 115%
X = 2117.08

Let's see, $2 dividend, $4 dividend, these say absolutely nothing about the price. Selling the stock at $50 a share, also says absolutely nothing about the current value. Taxes say absolutely nothing about the price, current or future. "The required rate of return is 15 percent"--so what the heck does your forecast have to do with anything.

A pretty woman approaches your table at the restaurant. She smiles and hands you the menu. What color are her eyes? What color were her shoes? How much money did get get in tips that day?

Accounting Problem?

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