An equity analyst from Jefferies & Co. expects Johnson & Johnson (NYSE: JNJ) current annual dividend of $1.50 to grow by 25% in one year and by 15% for two consecutive years. The analyst then forecasts the initial non-linear supernormal dividend growth rate of 15% to decline linearly to a final and constant growth rate of 8% over a 10-yoar period. Company's estimated cost of equity is 12%. Which of the following is closest to the estimate of the fair value of JNJ based on these inputs? O $68.26 O $54.75 O $51.27 O $76.21

An equity analyst from Jefferies & Co. expects Johnson & Johnson (NYSE: JNJ) current annual dividend of $1.50 to grow by 25% in one year and by 15% for two consecutive years. The analyst then forecasts the initial non-linear supernormal dividend growth rate of 15% to decline linearly to a final and constant growth rate of 8% over a 10-yoar period. Company's estimated cost of equity is 12%. Which of the following is closest to the estimate of the fair value of JNJ based on these inputs? O $68.26 O $54.75 O $51.27 O $76.21

Name: An equity analyst from Jefferies & Co. expects Johnson & Johnson (NYS
Uploaded: 2024-03-20T06:51:32.000Z
Channel: Bartleby
Description: An equity analyst from Jefferies & Co. expects Johnson & Johnson (NYSE: JNJ) current annual dividend of $1.50 togrow by 25% in one year and by 15% for two consecutive years. The analyst then forecasts the initial non-linearsupernormal dividend growt

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section: Chapter Questions

Problem 21P

See similar textbooks

Similar questions

An analyst uses a two-stage variable growth model to estimate the value of Old Maid Company's common stock. The most recent annual dividend paid by the company was $3 per share. The analyst expects dividends to increase 8% per year for the next 3 years and then drop to 4% starting in year 4 and remain stable for the foreseeable future. The required rate of return used for the analysis is 10% a) What are the expected dividends for the next 4 years? b) What is the value of the stock attributable to the first 3 years of dividends? (use NPV function) c) What is the value of the stock at the end of year 3? (use constant-growth model) d) What is the value of the stock attributable to years 4 and beyond? (use PV function, where the answer to part C is the FV) e) What is the total value of the stock? Please show how to use the formulas such as PV and FV in Excel such as NPV Thank You!
As an analyst, you have gathered the following information on a company you are tracking. The current annual dividend is $1.75. Dividends are expected to grow at a rate of 14% over the next 4 years, and then decline linearly to 5% over the next 7 years, and then remain at a long term equilibrium growth rate of 5% in perpetuity; the required return is 10%. Calculate the value of the company
An equity analyst from Jefferies & Co. expects Johnson & Johnson (NYSE: JNJ) current annual dividend of $1.50 to grow by 25% in one year and by 15% for two consecutive years. The analyst then forecasts the initial non-linear supernormal dividend growth rate of 15% to decline linearly to a final and constant growth rate of 8% over a 10-year period. Company's estimated cost of equity is 12%. Which of the following is closest to the estimate of the terminal value at the end of third year? O $97.54 O $88.65 O $94.27 O $63.10
Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value? Use the dividend values provided in the table below for your calculations. Do not round your intermediate calculations. Year Growth ΝΑ rate Dividends $0.000 0 1 2 3 4 5 6 NA ΝΑ ΝΑ 90.00% 45.00% 8.00% $0.000 $0.000 $0.250 $0.475 $0.689 $0.744
A team of analysts is using a two-stage variable growth mode to estimate the value of ABCM's common stock. The most recent annual dividend paid by ABCM was $9 per share. The analysts expect dividends to increase 6% per year for the next 3 years and then drop to 3% starting in year 4 and remain at that rate for the foreseable future. The required rate of return used for the analysis is 12% a) What are the expected dividends for the next 4 years? b) What is the value of the stock attributable to the first 3 years of dividends? (use NPV function) c) What is the value of the stock at the end of year 3? (use constant-growth model) d) What is the value of the stock attributable to years 4 and beyond? (use pv function, where answer to part C is the fv) e) What is the total value of ABCM stock?
News Corp is expected to pay a dividend of $0.8 in one year. The dividend is expected to grow at 12% in the following 3 years and then at a constant rate of 4% per annum indefinitely. If the required rate of return is 12%, what is the price of the company's share today? Please illustrate your answer using a timeline.
Holt Enterprises recently paid a dividend, Do, of $2.75. It expects to have nonconstant growth of 19% for 2 years followed by a constant rate of 3% thereafter. The firm's required return is 15%. a. How far away is the horizon date? I. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2. II. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. III. The terminal, or horizon, date is infinity since common stocks do not have a maturity date. IV. The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected dividends at time zero. V. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero. II b. What is the firm's horizon, or continuing, value? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. What is the firm's…
Analysts forecast that Dixie Chicks, Inc. (DCI) will pay a dividend of $3.00 a share now, continuing a long-term growth trend of 8% per year. If this trend is expected to continue indefinitely, and investors' required rate of return for DCI is 14%: a) What is the market value per share of DCI's common stock? b) What is the market value per share of DCI's common stock if required rate of return is 11%? c) If there is expected to be non-constant growth of 30% for the first year, then 24% for the next year, then 14% for next year, finally stabilizing to a constant growth of 9% per year in the 4th year what is the market value per share with the original required rate of return?
An analyst produces the following series of annual dividend forecasts for company D: Expected dividend (end of) year t+1 = 10 euros; Expected dividend (end of) year t+2 = 20 euros; Expected dividend (end of) year t+3 = 10 euros. The analyst further expects that company D dividend will grow indefinitely at a rate of 2 percent after year t+3. Company D cost of equity equals 10 percent. Under these assumptions, calculate the analysts estimate of company D equity value at the end of year t.
Holt Enterprises recently paid a dividend, Do. of $1.75. It expects to have nonconstant growth of 13% for 2 years followed by a constant rate of 4% thereafter. The firm's required return is 20%. a. How far away is the horizon date? 1. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2. II. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. III. The terminal, or horizon, date is infinity since common stocks do not have a maturity date. IV. The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected dividends at time zero. V. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero. -Select-V b. What is the firm's horizon, or continuing, value? Do not round intermediate calculations. Round your answer to the nearest cent. $ C. What is the firm's…
Sandhill Departmental Stores management has forecasted a growth rate of 40 percent for the next two years, followed by growth rates of 25 percent and 20 percent for the following two years. It then expects growth to stabilize at a constant rate of 7.5 percent forever. The firm paid a dividend of $3.90 recently. If the required rate of return is 14 percent, what is the current value of Sandhill's stock? (Round all intermediate calculations and final answer to 2 decimal places, e.g. 15.25.) Current value $Type your answer here
Whizcom Inc. is expected to pay a dividend of $1 next period. Dividends are expected to grow at 2% per year and the investors require a return of 12%. i) Compute the current stock price for Whizcom Inc.ii) What would be the likely stock price in year 5?iii) What would be per annum rate of return implied by a change in prices from time 0 to time 5?