Question
In: Finance
Suppose we have a firm that is assumed to have a dividend growth rate of 20%...
Suppose we have a firm that is assumed to have a dividend growth rate of 20% for the next three years, then 5% per year afterward. The cost of equity is assumed to be 15%. Assume that the stock recently paid a dividend of $9. The Compute the value of the stock
Solutions
Expert Solution
D1=(9*1.2)=10.8
D2=(10.8*1.2)=12.96
D3=(12.96*1.2)=15.552
Value after year 3=(D3*Growth rate)/(Cost of equity-Growth rate)
=(15.552*1.05)/(0.15-0.05)
=163.296
Hence value of stock=Future dividend and value*Present value of discounting factor(rate%,time period)
=10.8/1.15+12.96/1.15^2+15.552/1.15^3+163.296/1.15^3
=$136.79(Approx)
jeff jeffy answered 2 years agoRelated Solutions
Suppose we have a firm that is assumed to have a dividend growth rate of 20%...
Suppose we have a firm that is assumed to have a dividend growth
rate of 20% for the next three years, then 5% per year afterward.
The cost of equity is assumed to be 15%. Assume that the stock
recently paid a dividend of $9. The Compute the value of the
stock.
Suppose we have a firm that is assumed to have a dividend growth rate of 23%...
Suppose we have a firm that is assumed to have a dividend growth
rate of 23% for the next two years, then 5% per year afterward. The
cost of equity is assumed to be 18%. Assume that the stock recently
paid a dividend of $9. The Compute the value of the stock.
Suppose we have a firm that is assumed to have a dividend growth rate of 26%...
Suppose we have a firm that is assumed to have a dividend growth
rate of 26% for the next two years, then 7% per year afterward. The
cost of equity is assumed to be 15%. Assume that the stock recently
paid a dividend of $6. The Compute the value of the stock.
Suppose we have a firm that is assumed to have a dividend growth rate of 26%...
Suppose we have a firm that is assumed to have a dividend growth
rate of 26% for the next two years, then 5% per year afterward. The
cost of equity is assumed to be 19%. Assume that the stock recently
paid a dividend of $7. The Compute the value of the stock.
In a two-stage dividend growth model, it is commonly assumed that dividend growth drops from a...
In a two-stage dividend growth model, it is commonly assumed
that dividend growth drops from a high rate in the first stage to a
low perpetual growth rate in the second stage. Discuss the
reasonableness of this assumption and what happens if this
assumption is violated.
A rapidly growing firm is currently paying a dividend of $90. The dividend growth rate is...
A rapidly growing firm is currently paying a dividend of $90.
The dividend growth rate is expected to be 12% for the next 6
years. The dividend growth rate after the first 6 years is expected
to be 3% annually. The expected return on the market is 8%, the
risk free rate is 3% and the firm’s Beta is 25.
Calculate the estimated price (intrinsic value) for a share of
this firm’s stock.
What does this firm’s Beta measure?
Use...
In the previous problem, suppose the most recent dividend was $4 and the dividend growth rate...
In the previous problem, suppose the most recent dividend was
$4 and the dividend growth rate is 6 percent. Assume that the
overall cost of debt is the weighted average of that implied by the
two outstanding debt issues. Both bonds make semiannual payments.
The tax rate is 35 percent. What is the company’s WACC?
Please show work and calculations, thank you!
(THIS IS THE PREVIOUS PROBLEM-BELOW)
Filer Manufacturing has 8.2 million shares of common stock
outstanding. The current share...
3. A rapidly growing firm is currently paying a dividend of $4.00. The dividend growth rate...
3. A rapidly growing firm is currently paying a dividend of
$4.00. The dividend growth rate is expected to be 8% for the next 3
years. The dividend growth rate after the first 3 years is expected
to be 2% annually. The expected return on the market is 7%, the
risk free rate is 3% and the firm’s Beta is 1.20.
a. Calculate the estimated price (intrinsic value) for a share
of this firm’s stock.
b. What does this firm’s...
Suppose that the Treasury bill rate is 6% rather than 3%, as we assumed in Table...
Suppose that the Treasury bill rate is 6% rather than 3%, as we assumed in Table 12.1 but that the expected return on the market is still 10%. Use the betas in that table to answer the following questions.
a. Calculate the expected return from Pfizer. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
b. What is the highest expected return offered by one of these stocks? (Do not round intermediate calculations....
A firm wishes to maintain an internal growth rate of 9.5 percentand a dividend payout...
A firm wishes to maintain an internal growth rate of 9.5 percent
and a dividend payout ratio of 42 percent. The current profit
margin is 7.5 percent, and the firm uses no external financing
sources. What must total asset turnover be? (round 4 decimals)
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Write a function fun(x) that takes as input a positive number x and solves the following...
- Describe the principles and operations of movement sensors: Doppler-Effect Velocity sensor and Spring-Mass Accelerometor; State the...
- This is all one question, thank you so much in advance. The Bigbee Bottling Company is...
- For Questions 1-3: consider the following code: public class A { private int number; protected String...
- You are tasked with assessing the health department’s intervention program in preventing recurrence of acute alcohol...
- Compare the MOSFET, JFET , and BJT and identify the reasons these devices behave differently. What...
- How would you use SAS Enterprise Miner to create a neural network model of your example?
ADVERTISEMENT