Question

In: Finance

(Non-constant growth)Pettyway Corp's next annual dividend (D1) is expected to be $4

(Non-constant growth)Pettyway Corp's next annual dividend (D1) is expected to be $4. After that, the growth rate in dividends over the next three years is forecasted at 18%. And after that, Pettyway's growth rate in dividends is expected to be 2.8%. The required return is 10%. Then the value of the stock is $______.

Expert Solution

Calculation of value of stock

Value of stock = D1/(1+r)1+D2/(1+r)2+D3/(1+r)3+D4/(1+r)4+terminal value/(1+r)4

here,

required return = 10%

D1 = 4

D2 = 4*(1+18%) = 4.72

D3 = 4.72*(1+18%) = 5.5696

D4 = 5.5696*(1+18%) = 6.5721

D5 = 6.572128*(1+2.8%) = 6.7561

Terminal value = D5/(r-g)

= 6.7561/(10%-2.8%)

= 93.8347

Value of the stock = 4/(1+10%)1+4.72/(1+10%)2+5.5696/(1+10%)3+6.5721/(1+10%)4+93.8347/(1+10%)4

= 3.636364+3.90082645+4.18452292+4.48883273+64.0903627

= 80.30

Value of the stock = $80.30.

Junaid answered 2 years ago

(Non-constant growth)Pettyway Corp’s next annual dividend (D1) is expected to be $4. The growth rate in...

(Non-constant growth)Pettyway Corp’s next annual dividend (D1) is expected to be $4. The growth rate in dividends over the next three years is forecasted at 15%. After that, Pettyway’s growth rate in dividend is expected to be 5%. The required return is 18%, what is the value of the stock.

Part one The Evanec Company's next expected dividend, D1, is $3.63; its growth rate is 4%;...

Part one The Evanec Company's next expected dividend, D1, is $3.63; its growth rate is 4%; and its common stock now sells for $38.00. New stock (external equity) can be sold to net $30.40 per share. What is Evanec's cost of retained earnings, rs? Do not round intermediate calculations. Round your answer to two decimal places. rs = % What is Evanec's percentage flotation cost, F? Round your answer to two decimal places. F = % What is Evanec's cost...

The Evanec Company's next expected dividend, D1, is $2.65; its growth rate is 5%; and its...

The Evanec Company's next expected dividend, D1, is $2.65; its growth rate is 5%; and its common stock now sells for $35.00. New stock (external equity) can be sold to net $31.50 per share. What is Evanec's cost of retained earnings, rs? Do not round intermediate calculations. Round your answer to two decimal places. rs=_____% What is Evanec's percentage flotation cost, F? Round your answer to two decimal places. F=____% What is Evanec's cost of new common stock, re? Do...

The Evanec Company's next expected dividend, D1, is $3.05; its growth rate is 7%; and its...

The Evanec Company's next expected dividend, D1, is $3.05; its growth rate is 7%; and its common stock now sells for $39.00. New stock (external equity) can be sold to net $31.20 per share. What is Evanec's cost of retained earnings, rs? Do not round intermediate calculations. Round your answer to two decimal places. rs = % What is Evanec's percentage flotation cost, F? Round your answer to two decimal places. F = % What is Evanec's cost of new...

Lora Corp. anticipates a non-constant growth pattern for dividends. Dividends are expected to be $1.30 next...

Lora Corp. anticipates a non-constant growth pattern for dividends. Dividends are expected to be $1.30 next year followed by a 15% growth rate until the end of year five. At this time dividends will grow at a 5% rate for the foreseeable future. Use a discount rate of 12% (Ke) throughout your analysis. Round all values that you compute to two places to the right of the decimal point. Calculate Po Show the table to calculate for PV (dividend from...

COST OF COMMON EQUITY WITH AND WITHOUT FLOTATION The Evanec Company's next expected dividend, D1, is...

COST OF COMMON EQUITY WITH AND WITHOUT FLOTATION The Evanec Company's next expected dividend, D1, is $3.96; its growth rate is 4%; and its common stock now sells for $37. New stock (external equity) can be sold to net $31.45 per share. A. What is Evanec's cost of retained earnings, rs? Round your answer to two decimal places. Do not round your intermediate calculations. rs = % B. What is Evanec's percentage flotation cost, F? Round your answer to two...

Barton Industries expects next year's annual dividend, D1, to be $1.70 and it expects dividends to...

Barton Industries expects next year's annual dividend, D1, to be $1.70 and it expects dividends to grow at a constant rate g = 4.5%. The firm's current common stock price, P0, is $23.00. If it needs to issue new common stock, the firm will encounter a 4.8% flotation cost, F. Assume that the cost of equity calculated without the flotation adjustment is 12% and the cost of old common equity is 11.5%. What is the flotation cost adjustment that must...

Barton Industries expects next year's annual dividend, D1, to be $1.60 and it expects dividends to...

Barton Industries expects next year's annual dividend, D1, to be $1.60 and it expects dividends to grow at a constant rate g = 4.8%. The firm's current common stock price, P0, is $20.90. If it needs to issue new common stock, the firm will encounter a 5.3% flotation cost, F. Assume that the cost of equity calculated without the flotation adjustment is 12% and the cost of old common equity is 11.5%. What is the flotation cost adjustment that must...

Barton Industries expects next year's annual dividend, D1, to be $2.10 and it expects dividends to...

Barton Industries expects next year's annual dividend, D1, to be $2.10 and it expects dividends to grow at a constant rate gL = 4.9%. The firm's current common stock price, P0, is $24.20. If it needs to issue new common stock, the firm will encounter a 5.7% flotation cost, F. Assume that the cost of equity calculated without the flotation adjustment is 12% and the cost of old common equity is 11.5%. What is the flotation cost adjustment that must...

The three steps involved in the non-constant growth dividend discount model are:

The three steps involved in the non-constant growth dividend discount model are: A. Step 1: Set the investment horizon (year H) as the future year after which you expect the company's growth to settle down to a stable rate. B. Step 2: Forecast the stock price at the horizon, and discount it also to give its present value today. C. Step 1: Price estimated using the constant- growth formula to value the dividends that will be paid after the horizon...