Dividend (Div)Required return (r)Growth rate (g)Divr-gNow we can try this by introducing constant growth in dividends.A. Dividend is $1.00 per year. Investors require a 10% return.Initially, it is thought there will be 0% dividend growth.B. Dividend is $1.00. Required return is still 10% but investors now expectthe dividend will grow 2% per annum.C. Dividend is $1.00 per year. Market optimism drives the required return downto 8% while at the same time a new growth strategy boosts the expecteddividend growth rate to 6%.11=

Dividend refers the amount that a company gives to its shareholder.

Answered: Dividend (Div) Required return (r)…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section: Chapter Questions

Problem 21P

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Title: Constant Growth Model (new div - CAPM) You are considering buying common stock in Grow On, Inc. You have projected that the next dividend the company will pay will equal $7.60 and that dividends will grow at a rate of 6.0% per year thereafter. The firm's beta is 0.93, the risk-free rate is 6.1%, and the market return is 13.6%. What is the most you should pay for the stock now?
Reizenstein Technologies (RT) has just developèd a solar panel capable of generating 200% more electricity than any solar panel currently ón the market. As. result, RT is expected to experience a 15% annual growth rate for the next 5 vear By the end of 5 years, other firms will have developed comparable technology, and RT's growth rate will slow to 5% per year indefinitely. Stockholders require a return of 12% on RT's stock. The most recent annual dividend (Do), which was paid yesterday, was $1.75 per share. a. Calculate RT's expected dividends for t 1, t 2, t 3, t = 4, and t 5. b. Calculate the estimated intrinsic value of the stock today, Po. Proceed by finding the present value of the dividends expected at t 1, t 2, t 3, t = 4, and t = 5 plus the present value of the stock price that should exist at t = 5, P,. The Ps stock price can %3D
Assume that the economy can experience high growth, normal growth, or recession. Under these conditions, you expect the following stock market returns for the coming year: State of the Economy High Growth Normal Growth Recession Probability 0.2 0.7 0.1 Return 60% 18% 2% a. Compute the expected value of a $1,000 investment over the coming year. If you invest $1,000 today, how much money do you expect to have next year? What is the percentage expected rate of return? Instructions: Enter dollar values rounded to the nearest whole dollar and percentages rounded to one decimal place. The expected value is $ and the expected rate of return is b. Compute the standard deviation of the percentage return over the coming year. Standard deviation = % = %. c. If the risk-free return is 7 percent, what is the risk premium for a stock market investment? Risk premium %
T Jones Productions has been a growth firm and not been paying dividends in the past. Now they are maturing and growth is moderating which allows them to begin paying dividends. The analysts forecast that the expected dividends will be: Year 1: 0.95 Year 2: 1.66 Year 3: 2.17 then are expected to grow at g=3% The required rate of return of 8.10% results in an intrinsic 'value' (V0) of $38.71. If the current market price (P0) is $36.70, what is the expected rate of return (E(r))?
Franklin Corporation is expected to pay a dividend of $1.24 per share at the end of the year (D1 = $1.24). The stock sells for $32.40 per share, and its required rate of return is 7.2%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate? (Round your answer to 2 decimal places.) Please work out the problem do not use excel.
Gordon Growth Company is expected to pay a dividend of $4 next period and dividends are expected to grow at 6% per year. The required return is 16%. What is the price expected to be in year 4? a. $40 b. $10 c. $41.6 d. $50.50
Consider the table given below to answer the following question. The long-run growth rate is projected at 5% and discount rate is 10%. Year Asset value Earnings Net investment Free cash flow (FCF) Return on equity (ROE) Asset growth ratei Earnings growth rate 1 2 4 5 6 7 8 10 28.49 29.92 15.00 16.65 18.48 20.51 22.16 23.93 25.84 27.13 1.65 1.83 2.03 1.65 1.83 2.03 1.99 2.09 1,42 1.50 2.26 2.44 2.51 2.58 2.58 1.64 1.77 1.91 1.29 1.36 0.62 9.66 0.60 1.29 1.22 0.11 0.11 0.11 0.11 0.11 0.105 0.10 0.095 0.11 0.11 0.11 0.08 0.08 0.00 0.05 0.05 0.05 0.11 0.11 0.11 0.08 0.57 0.60 0.07 9.07 0.05 0.03 0.03 0.00 -0.23 0.05 Assuming that competition drives down profitability (on existing assets as well as new investment) to 10.5% in year 6, 10% in year 7. 9.5% in year 8, and 7% in year 9 and all later years. What is the value of the concatenator business? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Present value million
Our company forecasts to pay a $10 dividend next year, which represents 100% of its earnings. This will provide investors with a 9% expected return. Instead, we decide to plowback 33% of the earnings at the firm current return on equity of 12%. What is the present value of growth opportunities (PVGO)? A. 21.8 B. 10.5 C. 35.5 D. 55.5
Calculation of gL and EPS Spencer Suppliess stock is currently selling for 60 a share. The firm is expected to earn 5.40 per share this year and to pay a year-end dividend of 3.60. a. If investors require a 9% return, what rate of growth must be expected for Spencer? b. If Spencer reinvests earnings in projects with average returns equal to the stocks expected rate of return, then what will be next years EPS? [Hint: gL = ROE Retention ratio.)
5. Assume that the economy can experience high growth, normal growth, or recession. Under these conditions, you expect the following stock market returns for the coming year: State of the Economy Probability Return High Growth +30% Normal Growth +12% Recession -15% 0.2 0.7 0.1 a. Compute the expected value of a $1,000 investment over the coming year. If you invest $1,000 today, how much money do you expect to have next year? What is the percentage expected rate of return? b. Compute the standard deviation of the percentage return over the coming year. c. If the risk-free return is 7 percent, what is the risk premium for a stock market investment?
Assume that the economy can experience high growth, normal growth, or recession. Under these conditions you expect the following stock market returns for the coming year: State of the Economy High Growth Normal Growth Recession. Probabilities 0.2 0.7 0.1 Return +30% +12% -15% 1. Compute the expected value of a $2000 investment over the coming year. If you invest $2,000 today, how much money do you expect to have next year? 2. Compute the standard deviation of the percentage return over the coming year.
Suppose a firm is expected to increase dividends by 20% in one year and by 15% in two years. After that dividends will increase at a rate of 5% per year indefinitely. If the last dividend was $1 and the required return is 20%, what is the price of the stock? O R= 20% 1 2 3 g = 20% g = 15% g = 5% Do = 1.00

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