Question

In: Finance

Krispy Kreme just paid a (annual) dividend of $1, which is expected to grow at 10%...

Krispy Kreme just paid a (annual) dividend of $1, which is expected to grow at 10% for two years and then at 4% thereafter. If the required return on Holliday Investments is 7.5%, what is the intrinsic value of Holliday Investments stock?

Solutions

Expert Solution

Calculation of Annual Dividend
Year Calculations Dividend
0 $                  1.0000
1 =1*1.1 $                  1.1000
2 =1.1*1.1 $                  1.2100
3 =1.21*1.04 $                  1.2584
Let us calculate terminal value at year end 2
Terminal Value at the end of year 2 = Year 3 Dividend / (required rate- growth rate)
=1.2584/(0.075-0.04)
=35.9543
Calculation of stock price
Year Cash Flow PV Factor PV Of Cash Flow
a b c=1/1.075^a d=b*c
1 $                   1.1000 0.93023 $                     1.02
2 $                   1.2100 0.86533 $                     1.05
2 $                35.9543 0.86533 $                  31.11
Stock Price $                  33.18

Related Solutions

A stock just paid an annual dividend of $2.7. The dividend is expected to grow by...
A stock just paid an annual dividend of $2.7. The dividend is expected to grow by 6% per year for the next 4 years. The growth rate of dividends will then fall steadily by 0.25% per year, from 6% in year 4 to 5% in year 8 and stay at that level forever. The required rate of return is 12%. What is the expected dividend in 8 years? What is the expected stock price in 8 years? What should be...
A stock just paid an annual dividend of $1.4. The dividend is expected to grow by...
A stock just paid an annual dividend of $1.4. The dividend is expected to grow by 10% per year for the next 4 years. The growth rate of dividends will then fall steadily from 10% after 4 years to 4% in year 8. The required rate of return is 12%. Question: 1. What is the stock price if the dividend growth rate will stay 4% forever after 8 years? 2. In 8 years, the P/E ratio is expected to be...
A stock just paid an annual dividend of $1.6. The dividend is expected to grow by...
A stock just paid an annual dividend of $1.6. The dividend is expected to grow by 9% per year for the next 4 years. The growth rate of dividends will then fall steadily from 9% after 4 years to 4% in year 8. The required rate of return is 12%. What is the stock price if the dividend growth rate will stay 4% forever after 8 years?
1. A) A stock just paid a dividend of $1.16. The dividend is expected to grow...
1. A) A stock just paid a dividend of $1.16. The dividend is expected to grow at 24.14% for five years and then grow at 4.69% thereafter. The required return on the stock is 12.47%. What is the value of the stock? B) A stock just paid a dividend of $2.34. The dividend is expected to grow at 28.45% for two years and then grow at 3.72% thereafter. The required return on the stock is 10.49%. What is the value...
a. A stock just paid a dividend of $1.04. The dividend is expected to grow at...
a. A stock just paid a dividend of $1.04. The dividend is expected to grow at 26.98% for three years and then grow at 4.97% thereafter. The required return on the stock is 11.63%. What is the value of the stock? b. A stock just paid a dividend of $1.17. The dividend is expected to grow at 22.53% for five years and then grow at 4.80% thereafter. The required return on the stock is 14.27%. What is the value of...
A stock just paid a dividend of $2.40. The dividend is expected to grow at a...
A stock just paid a dividend of $2.40. The dividend is expected to grow at a rate of 5% forever. If the stock is currently selling for $25.00, what return do investors require to hold this stock? 18%, 17%, 16%, 15% A project is projected to cost $2,000,000 to undertake. It will generate positive cash inflows as follows: Year 1 - $400,000; Year 2 – 500,000; Year 3 - $650,000; Year 4 – 700,000; Year 5 – 800,000. What is...
1. HF Corporation just paid a dividend of $4.00. The dividend is expected to grow by...
1. HF Corporation just paid a dividend of $4.00. The dividend is expected to grow by 8% this year, 6% in year two and 5% in year three. Beginning in year four, the dividend is expected to grow at a constant rate of 4%. With a required return of 10%, what is a share of this company’s stock worth today? 2. TP Company report FCF of $800,000 in the most recently completed year. FCF is expected to grow by 10%...
1. A stock just paid a dividend of $0.75. This quarterly dividend is expected to grow...
1. A stock just paid a dividend of $0.75. This quarterly dividend is expected to grow at a rate of 4% for the next 10 years, after which it will grow at a rate of -2% in perpetuity. What is the price of the stock if the required return is 12% (all rates are APR with quarterly compounding)? 2. A firm has a P/E ratio of 18.5, a payout ratio of 50%, and a required return of 12% per annum....
1. A stock just paid a dividend of D0 = $0.66. Dividend is expected to grow...
1. A stock just paid a dividend of D0 = $0.66. Dividend is expected to grow at a constant rate of 3.2%. The required rate of return is 15.7%. What is the current stock price? 2. XYZ stock is currently selling for $40.35 per share. The company just paid its first annual dividend of $4.08 a share. The firm plans to increase the dividend by 7 percent per year indefinitely. What is the expected return on XYZ stock?
AT&T just paid a $5 dividend, dividends are expected to grow at a 10% rate for...
AT&T just paid a $5 dividend, dividends are expected to grow at a 10% rate for the next three years and at a 5% rate after that. What is the value of the stock if investors require a 13% return to purchase the stock?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT