The ABC Company is expected to have a constant annual growth rate of 5 percent. It...

The ABC Company is expected to have a constant annual growth rate of 5 percent. It has a price per share of P32 and pays an expected dividend of P2.40. Its competitor, the DEF Company is expected to have a growth rate of 10%, has a price per share of P72, and pays an expected P4.80/share dividend. The required rates of return on equity for the two companies are:
A. B. C. D.
ABC 13.8% 9.6% 12.5% 16.2%
DEF 15.4% 8.6% 16.7% 18.2%

Airlines is expected to pay an upcoming dividend of $3.29. The company's dividend is expected to grow at a steady, constant rate of 5% well into the future. ROMELfell currently has 1,600,000 shares of common stock outstanding. If the required rate of return for ROMELfell is 12%, what is the best estimate for the current price of ROMELfell's common stock?
A. $65.80 B. $62.51 C. $47.00 D. $27.41

Blair Brothers’ stock currently has a price of $50 per share and is expected to pay a year-end dividend of $2.50 per share (D1 = $2.50). The dividend is expected to grow at a constant rate of 4 percent per year. The company has insufficient retained earnings to fund capital projects and must, therefore, issue new common stock. The new stock has an estimated flotation cost of $3 per share. What is the company’s cost of equity capital?
a. 10.14% b. 9.21% c. 9.45% d. 9.32%

Solutions

Expert Solution

ABC Company: Answer- (C) 12.5%

DEF Comapny: Answer- (C) 16.7%

Current price of ROMELfell's common stock : Answer- (C) $47

Calculation of current price of ROMELfell's common stock

Formula

Current price of ROMELfell's common stock= Expected Dividend/( required rate of return on equity-Growth Rate)

=3.29/12%-5%

=$47

BLAIR BROTHERS COST OF CAPITAL: Answer- (d) 9.32%

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

A company is expected to maintain a constant 3 percent growth rate in its dividends indefinitely.

A company is expected to maintain a constant 3 percent growth rate in its dividends indefinitely. If the company’s stock has a dividend yield of 4.85 percent, what is the required return on the stock? (Hint: dividend yield is a stock’s next dividend divided by its price.)A company pays a constant $8.25 dividend on its stock. The company will maintain this dividend for the next 13 years and will then cease paying dividends forever. If the required return on this...

Growing Real Fast Company (GRF) is expected to have a 25 percent growth rate for the...

Growing Real Fast Company (GRF) is expected to have a 25 percent growth rate for the next four years (effecting D1, D2, D3, and D4). Beginning in year five, the growth rate is expected to drop to 7 percent per year and last indefinitely. If GRF just paid a $2.00 dividend and the appropriate discount rate is 15 percent, then what is the value of a share of GRE? SOLUTION Excel

Growing Real Fast Company (GRF) is expected to have a 25 percent growth rate for the...

Growing Real Fast Company (GRF) is expected to have a 25 percent growth rate for the next four years (affecting D1, D2, D3, and D4). Beginning in year five, the growth rate is expected to drop to 2.4 percent per year and last indefinitely. If GRF just paid a $4.00 dividend and the appropriate discount rate is 17.5 percent, then what is the value of a share of GRF? Enter your answer to two decimal places.

(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.

ABC Industries is expected to enjoy a very rapid growth rate in dividends of 30 percent...

ABC Industries is expected to enjoy a very rapid growth rate in dividends of 30 percent a year for the next 3 years. This growth rate is then expected to slow to 20 percent a year for the next 5 years. After that time, the growth rate is expected to be 6 percent a year. D0 is $2. The beta for this stock is 1.5. The expected return on the market is 11 percent, and the risk free rate is...

Company is expected to have extraordinary growth of 20% for four years, after which it will face more competition and slip into a constant growth rate of 5%. Its

Company is expected to have extraordinary growth of 20% for four years, after which it will face more competition and slip into a constant growth rate of 5%. Its required rate of return is 10%. Divieden is $5. What is the price of company's stocks?

Tell Me Why Co. is expected to maintain a constant 4.2 percent growth rate in its...

Tell Me Why Co. is expected to maintain a constant 4.2 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 6 percent, what is the required return on the company’s stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Required return %

ABC company is expected to grow at the industry constant rate of 6% and its dividend...

ABC company is expected to grow at the industry constant rate of 6% and its dividend yield is 7%. the company is as risky as the average firm in the industry, but it successfully completed some R&D work that leads to the expectation that its earnings and dividends will grow at a rate of 50% this year and 35% in the following year, after which growth return to the 6% industry average. if the last dividend was $1.00, what is...

Suppose that a company pays annual dividends that are expected to grow at a constant rate...

Suppose that a company pays annual dividends that are expected to grow at a constant rate of 6% per year forever. The company just paid a dividend of $2. If the market requires an annual return of 14% on this stock, what should we expect the price to be in 5 years?

The last dividend paid by Klein Company was $1.00. Klein's growth rate is expected to be a constant 8 percent for 2 years, after which dividends are expected to grow at a rate of 6 percent forever.

The last dividend paid by Klein Company was $1.00. Klein's growth rate is expected to be a constant 8 percent for 2 years, after which dividends are expected to grow at a rate of 6 percent forever. Klein's required rate of return on equity (rs) is 12 percent. What is the current price of Klein's common stock?

Subjects