A firm pays a $1.50 dividend at the end of year 1 (D1), has a stock price of $155 (Po), and a constant growth rate (g) of 10 percent. Compute the required rate of return (K.). Indicate whether each of the following changes would make the required rate of return (K.) go up or down. (Each question is separate from the others. That is, assume only one variable changes at a time.) No actual numbers are a. necessary. b. The dividend payment increases. The expected growth rate increases. d. The stock price increases. C.

A firm pays a $1.50 dividend at the end of year 1 (D1), has a stock price of $155 (Po), and a constant growth rate (g) of 10 percent. Compute the required rate of return (K.). Indicate whether each of the following changes would make the required rate of return (K.) go up or down. (Each question is separate from the others. That is, assume only one variable changes at a time.) No actual numbers are a. necessary. b. The dividend payment increases. The expected growth rate increases. d. The stock price increases. C.

Name: 33. A firm pays a $1.50 dividend at the end of year 1 (D,), has a sto
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Description: 33. A firm pays a $1.50 dividend at the end of year 1 (D,), has a stock price of$155 (Po), and a constant growth rate (g) of 10 percent.Compute the required rate of return (K.).Indicate whether each of the following changes would make the requiredra

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 18MC

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Suppose TRF = 6%, TM = 11%, and b₁ = 1.2. a. What is n, the required rate of return on Stock i? Round your answer to one decimal place. 12 % b. 1. Now suppose TRF increases to 7%. The slope of the SML remains constant. How would this affect rm and r? I. Both rm and i will increase by 1 percentage point. II. rM will remain the same and r will increase by 1 percentage point. III. rM will increase by 1 percentage point and r₁ will remain the same. IV. Both rm and will decrease by 1 percentage point. V. Both rm and r will remain the same. I 2. Now suppose TRF decreases to 5%. The slope of the SML remains constant. How would this affect rm and n? I. Both rm and n will increase by 1 percentage point. II. Both rm and r will remain the same. III. Both rm and r₁ will decrease by 1 percentage point. IV. rM will decrease by 1 percentage point and r¡ will remain the same. V. rm will remain the same and ri will decrease by 1 percentage point. c. 1. Now assume that rRF remains at 6%, but rM…
A firm pays a $13.80 dividend at the end of year one (D1), has a stock price of $149, and a constant growth rate (g) of 5 percent. Compute the required rate of return (Ke). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
Suppose 5%, TH 13%, and b₁ = 1.9. a. What is n, the required rate of return on Stock I? Round your answer to one decimal place. % b. 1. Now suppose mr increases to 6%. The slope of the SML remains constant. How would this affect and n? 1. Both г and will increase by 1 percentage point. II. г will remain the same and n will increase by 1 percentage point. III. will increase by 1 percentage point and n will remain the same. IV. Both г and n will decrease by 1 percentage point. -Select- V. Both г and will remain the same. 2. Now suppose гRF decreases to 4%. The slope of the SML remains constant. How would this affect and n? I. Both and will decrease by 1 percentage point. II. г will decrease by 1 percentage point and r, will remain the same. III. г will remain the same and r will decrease by 1 percentage point. IV. Both г and n will increase by 1 percentage point. -Select- V. Both г and will remain the same. c. 1. Now assume that RF remains at 5%, but г increases to 14%. The slope of the…
Suppose that Do = $1.00 and the stock's last closing price is $15.85. It is expected that earnings and dividends will grow at a constant rate of g = 3.50% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium, and the most appropriate required rate of return is rs = 10.00%. The dividend received in period 1 is D1 = $1.00 × (1+0.0350) = $1.04 and the estimated intrinsic value in the same period is based on the D2 constant growth model: P₁: TS-8 Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. Activity Frame Dividend Price PV t 10.00% Period (Dollars) (Dollars) (Dollars) 0 $1.00 $15.85 1 1.03 16.46 $0.94 2 1.07 17.08 $0.97 3 1.11 17.69 $1.01 4 1.15 18.31 $0.97 5 1.19 18.92 $0.94 The dividend yield for period 1 is and it will The capital gain yield expected during period 1 is and it will each period. each period. If it is…
Suppose that Do = $1.00 and the stock's last closing price is $26.25. It is expected that earnings and dividends will grow at a constant rate of g = 5.00% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium, and the most appropriate required rate of return is rs = 9.00%. The dividend received in period 1 is D₁ = $1.00 × (1+0.0500) = $1.05 and the estimated intrinsic value in the same period is based on the constant growth model: P₁ = P² Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. Price (Dollars) $26.25 PV of dividend at 9.00% (Dollars) Dividend Period (Dollars) 0 $1.00 1.05 1 2 3 4 5 The dividend yield for period 1 is The capital gain yield expected during period 1 is 4.00% O 5.00% and it will 9.00% If it is forecasted that the total return equals 9.00% for the next 5 years, what is the forecasted total return out…
Suppose =5%, TH 13%, and b₁ = 1.9. a. What is n, the required rate of return on Stock I? Round your answer to one decimal place. % b. 1. Now suppose nr increases to 6%. The slope of the SML remains constant. How would this affect г and n? I. Both г and n will increase by 1 percentage point. II. г will remain the same and r will increase by 1 percentage point. III. г will increase by 1 percentage point and r will remain the same. -Select- IV. Both г and n will decrease by 1 percentage point. V. Both г and will remain the same. 2. Now suppose FRF decreases to 4%. The slope of the SML remains constant. How would this affect and n? I. Both ' and n will decrease by 1 percentage point. II. г will decrease by 1 percentage point and r, will remain the same. III. г will remain the same and r will decrease by 1 percentage point. IV. Both and V. Both г and -Select- ✓ will increase by 1 percentage point. will remain the same. c. 1. Now assume that RF remains at 5%, but г increases to 14%. The…
Suppose rRF = 6%, rM = 10%, and bi = 1.8. What is ri, the required rate of return on Stock i? Round your answer to one decimal place. % 1. Now suppose rRF increases to 7%. The slope of the SML remains constant. How would this affect rM and ri? Both rM and ri will remain the same. Both rM and ri will increase by 1 percentage point. rM will remain the same and ri will increase by 1 percentage point. rM will increase by 1 percentage point and ri will remain the same. Both rM and ri will decrease by 1 percentage point. 2. Now suppose rRF decreases to 5%. The slope of the SML remains constant. How would this affect rM and ri? Both rM and ri will remain the same. Both rM and ri will decrease by 1 percentage point. rM will decrease by 1 percentage point and ri will remain the same. rM will remain the same and ri will decrease by 1 percentage point. Both rM and ri will increase by 1 percentage point. 1. Now assume that rRF remains at 6%, but rM increases to 11%.…
Suppose rRF = 4%, rM = 11%, and bi = 1.5. What is ri, the required rate of return on Stock i? Round your answer to two decimal places. % 1. Now suppose rRF increases to 5%. The slope of the SML remains constant. How would this affect rM and ri? Both rM and ri will decrease by 1%. Both rM and ri will remain the same. Both rM and ri will increase by 1%. rM will remain the same and ri will increase by 1%. rM will increase by 1% and ri will remain the same.
A firm pays a 5.80 dividend at the end of year one (d1), has a stock price of 103, and a constant growth rate (g) of 4 percent. Compute the required rate of return (ke).
b) Recent dividend distributed RM1. 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 required return is 20%, calculate the stock.
d. What is the rate of return on your margined position (assuming again that you invest $15,000 of your own money) if Xtel is selling after 1 year at: (i) $83.62; (ii) $74; (iii) $64.38? What is the relationship between your percentage return and the percentage change in the price of Xtel? Assume that Xtel pays no dividends. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) Rate of return for ear. i.) ? ii.) ? iii.) -22.51
Suppose a firm is expected to increase dividends by 20% in one year and decrease by 12% in two years and then increase by 15% in three years. After that dividends will increase at a rate of 5% per year indefinitely. The last dividend was $1.55 and the required return is 13%. a) Compute the dividends until growth levels off. Ans: D1 = ? D2 = ? D3 = ? D4 = ? b) Find the expected future price at the beginning of the constant growth period: Ans: P3 = ? c) Find the present value of the expected future cash flows Ans: P0 = ?