Question

you're valuing horn of plenty mining, inc.'s, stock in order to compare its value to its market price. you believe that the company will pay total dividends of $1.45 in 2015 and $1.56 in 2016. you also believe the company's stock price will be $35.80 at the end of 2016. if the appropriate discount rate is 12 percent, what's the value of horn of plenty mining's stock? a. $39.22 b. $38.31 c. $36.87 d. $37.43

Answer 1

Using the dividend discount model, the value of a stock is calculated by adding the present value of all expected future dividends. Here's how to solve the problem:

Step 1: Calculate the present value of each dividend payment.

PV(2015) = $1.45 / (1 + 0.12)^1 = $1.29
PV(2016) = $1.56 / (1 + 0.12)^2 = $1.22

Step 2: Calculate the present value of the expected stock price at the end of 2016.

PV(2016 stock price) = $35.80 / (1 + 0.12)^2 = $28.33

Step 3: Add up the present values of the dividend payments and stock price to get the total stock value.

Stock value = PV(2015) + PV(2016) + PV(2016 stock price) = $1.29 + $1.22 + $28.33 = $30.84

Therefore, the value of Horn of Plenty Mining's stock is $30.84, which means that the correct option is e) None of the above.