In: Finance

The current dividend on an equity share of a company is $3.the present growth rate is 50%. However, this will decline linearly over a period of 10 years and then stabilize at 12% . What is the intrinsic The value of that company if investors require a return of 16%.

The growth rate in year 1 is 50%. It has to decline to 12% in 10 years. Hence, decline in growth rate per year over next 10 years = (50% - 12%) / 10 = 3.80%

The dividend over next 10 years will be as shown below:

Time |
Growth rate |
Dividend |

0 | 3.00 | |

1 | 50.00% | 4.50 |

2 | 46.20% | 6.58 |

3 | 42.40% | 9.37 |

4 | 38.60% | 12.98 |

5 | 34.80% | 17.50 |

6 | 31.00% | 22.93 |

7 | 27.20% | 29.17 |

8 | 23.40% | 35.99 |

9 | 19.60% | 43.05 |

10 | 15.80% | 49.85 |

11 | 12.00% | 55.83 |

Hence, horizon value of all the future dividend from year 11
onward, at the end of year 10 =D_{HV,10} = D11 / (Ke - g) =
55.83 / ( 16% - 12%) = 1,395.71

Hence, the intrinsic value of that company = PV of
all the dividends over next 10 years + PV of D_{HV,10} = D1
/ (1 + Ke) + D2 / (1 + Ke)^{2} + D3 / (1 + Ke)^{3}
+.....+ D10 / (1 + Ke)^{10} + D_{HV,10} / (1 +
Ke)^{10} = 4.50 /(1 + 16%) + 6.58 / (1 + 16%)^{2} +
9.37 / (1 + 16%)^{3} +.....+ 49.85 / (1 + 16%)^{10}
+ 1,395.71 / (1 + 16%)^{10} = $ 399.99 = $ 400 / share

A company just paid a $2 dividend per share. The dividend growth
rate is expected to be 10% for each of the next 2 years, after
which dividends are expected to grow at a rate of 3% forever. If
the company’s required return (rs) is 11%, what is its
current stock price?

1.) XYZ Corporation's
next dividend is expected to be $3 per share. Dividend growth rate
has been at 2% and expected to be so into the future. If investor's
return is 10%, calculate the stock price next year.
A) 37.50
B) 38.25
C) 38.50
D) 38.75
E) None of the
above
Which of the following
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A) Par Value
B) Dividend yield
C) Cumulative
dividends
D) It is legally
considered equity...

Assume that a company just paid a dividend of $2 per share. The
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year.
a. What is an estimate of Growth Company's cost of equity?
b. Growth Company also has preferred stock outstanding that pays
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c....

Growth Company's current share price is
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and it is expected to pay a
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are expected to grow at a rate of
3.5%
per year.
a. What is an estimate of Growth Company's cost of equity?
b. Growth Company also has preferred stock outstanding that pays
a
$1.85
per share fixed dividend. If this stock is currently priced
at
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what is Growth Company's cost of preferred stock?
c....

Growth Company's current share price is
$19.85
and it is expected to pay a
$1.05
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per year.
a. What is an estimate of Growth Company's cost of equity?
b. Growth Company also has preferred stock outstanding that pays
a
$1.95
per share fixed dividend. If this stock is currently priced
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Company...

Growth Company's current share price is $20.20 and it is
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a. What is an estimate of Growth Company's cost of equity?
b. Growth Company also has preferred stock outstanding that pays
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c. Growth...

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The Duo Growth Company just paid a dividend of $1.00 per share.
The dividend is expected to grow at a rate of 23% per year for the
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a. What is your estimate of the intrinsic value
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