Question
In: Finance
IBM's income, assets, and stock price have been growing at an annual rate of 20% and...
IBM's income, assets, and stock price have been growing at an annual rate of 20% and are expected to continue to grow at this rate for 2 more years. They just paid a dividend of $2.00 and will continue to pay at the supernormal growth rate (20%) for the next two years. After that, dividends are expected to grow at the firm's constant growth rate of 8%. The required rate of return is 18%. The present value of the stock is a. $26.44 b. $23.03 c. $33.15 d. $40.01 e. $36.00
10. In the previous question, if IBM is currently selling for $40.00, then the stock is a. undervalued by $13.56 b. overvalued by $13.56 c. correctly valued d. overvalued by $16.97 e. undervalued by $16.97
Solutions
Expert Solution
| rate | 18.0000% | |
| Cash flows | Year | Discounted CF= cash flows/(1+rate)^year |
| - | 0 | - |
| 2.40 | 1 | 2.03 |
| 2.88 | 2 | 2.07 |
| 31.10 | 2 | 22.34 |
present value of the stock = 26.44
if stock is selling at 40, then it is overvalued by 13.56 b)
jeff jeffy answered 1 day agoRelated Solutions
The Foreman Company’s earnings and common stock dividends have been growing at an annual rate of...
The Foreman Company’s earnings and common stock dividends have
been growing at an annual rate of 7 percent over the past 10 years
and are expected to continue growing at this rate for the
foreseeable future. The firm currently (that is, as of year 0) pays
an annual dividend of $6 per share. Determine the current value of
a share of Foreman common stock to investors with each of the
following required rates of return. Use a minus sign to...
General Cereal common stock dividends have been growing at an annual rate of 5 percent per...
General Cereal common stock dividends have been growing at an
annual rate of 5 percent per year over the past 10 years. Current
dividends are $1.9 per share. What is the current value of a share
of this stock to an investor who requires a 13 percent rate of
return if the following conditions exist? Round your answers to the
nearest cent.
Dividends are expected to continue growing at the historic rate
for the foreseeable future. $
The dividend growth...
Nonconstant Growth Stock Valuation Conroy Consulting Corporation (CCC) has been growing at a rate of 20%...
Nonconstant Growth Stock Valuation
Conroy Consulting Corporation (CCC) has been growing at a rate
of 20% per year in recent years. This same non-constant growth rate
is expected to last for another 2 years (g0,1 = g1,2 = 20%).
If D0= $1.10, rs= 12% and gL = 8%, then what is CCC's stock
worth today? Round your answer to the nearest cent. Do not round
your intermediate computations.
$
What is its expected dividend yield at this time? Round the...
A stock price is $50 with annual volatility of 20%. Assume a risk-free rate of 6%...
A stock price is $50 with annual volatility of 20%. Assume a
risk-free rate of 6% p.a. The strike price of a European put is $50
and the time to maturity is 4 months. Calculate the following
Greeks for the put:
11.1 Delta
11.2 Theta
11.3 Gamma
11.4 Vega
11.5 Rho
If the stock price changes by $2 over a short period of time,
estimate the change in option price using the Greeks?
Company ABC currently pays $5 dividend. Dividends have been growing at a 3% annual rate and...
Company ABC currently pays $5 dividend. Dividends have been
growing at a 3% annual rate and are expected to continue growing
with same rate for the foreseeable future. What is the current
value of this stock if the required rate of return is 18%?
One of IBM's bond issues has an annual coupon rate of 4.3%, a face value of...
One of IBM's bond issues has an annual coupon rate of 4.3%, a
face value of $1,000 and matures in 8 years.
What is the value (or price) of the bond if the required return
is 5%?
What is the value of the bond if the required return is 6%?
What is the value of the bond if the required return is 7%?
One of IBM's bond issues has an annual coupon rate of 3.6%, a face value of...
One of IBM's bond issues has an annual coupon rate of 3.6%, a
face value of $1,000 and matures in 9 years.
What is the value (or price) of the bond if the required return
is 5%?
One of IBM's bond issues has an annual coupon rate of 3.6%, a face value of...
One of IBM's bond issues has an annual coupon rate of 3.6%, a
face value of $1,000 and matures in 9 years
What is the value of the bond if the required return is 7%?
A firm has been growing at 20% per year, and you expect this growth rate will...
A firm has been growing at 20% per year, and you expect this
growth rate will continue for another 3 years. After that it will
face more competition and slip into a constant growth rate of 5%
forever. If the discount rate is 10% and last dividend paid was
$3.
(a) What will the next dividend be?
(b) What is the expected price of the stock 3 years from now?
(c) What should the stock price be today?
Lite Events has been growing at a rate of 20% per year, and you expect this...
Lite Events has been growing at a rate of 20% per year, and you
expect this growth rate in earnings and dividends to continue for
another 4 years. The last dividend paid was $2, and if the steady
(i.e., constant) growth rate after 4 years is 5%, what should the
stock price be today? Assume that the stock has a beta of 2.0,
Treasury bills yield 3%, and the market risk premium is 6%.
*work please
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- JAVA FILE PROGRAM Write a contacts database program that presents the user with a menu that...
- List any 5 Unix commands with their brief description.
- You are planning to save for retirement over the next 30 years. To save for retirement,...
- Matlab Code Illustrate the fact that the average of a large number of independent random variables...
- Given the vectors d = [−3, 6, 7] e = [8, −5, 3] and f =...
- You will extend last week's workshop activity by adding a Player class. Each player has a...
- This lesson's Group Activities are: Use python and use double strings Talk like a Pirate! In...
ADVERTISEMENT