Varigrowth Inc. just paid a dividend of $0.62 (i.e., Do = $0.62). Such dividend is expected to grow by 20% per year for the next 3 years, after which it isexpected to grow at a long-run rate of 4%. Assuming investors require a 12% return on the stock,a) What is the price at t=3? $(to the nearest cent)b) What is its price today? $(to the nearest cent)c) What is your total rate of return (% to two decimals) if in one year the price is $11.14 and the dividend is $0.75? %What is your dividend yield?What is your capital gain (loss) yield?

The given problem relates to two stage dividend growth model.

Answered: /arigrowth Inc. just paid a dividend of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 12P

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Similar questions

Varigrowth Inc. just paid a dividend of $1.99 (i.e., D0 = $1.99). Such dividend is expected to grow by 10% per year for the next 3 years, after which it is expected to grow at a long-run rate of 3.5%. Assuming investors require a 14% return on the stock, What is the price at t=3? (to the nearest cent) What is its price today? (to the nearest cent) What is your total rate of return (% to two decimals) if in one year the price is $22.62 and the dividend is $2.18? What is your dividend yield? What is your capital gain (loss) yield?
Varigrowth Inc. just paid a dividend of $1.96 (i.e., Do = $1.96). Such dividend is expected to grow by 10% per year for the next 3 years, after which it is expected to grow at a long-run rate of 4%. Assuming investors require a 14% return on the stock, a) What is the price at t=3? $ 13 (to the nearest cent) b) What is its price today? $ (to the nearest cent) c) What is your total rate of return (% to two decimals) if in one year the price is $23.56 and the dividend is $2.12? What is your capital gain (loss) yield?% What is your dividend yield?
Gazelle Motors paid a dividend of MUR 2(i.e., Do = MUR2.00). The dividend is expected to grow by 90% during Year 1, by 50% during Year 2, and then at a constant rate of 5% thereafter. If the required rate of return is 12%, what is the value of the stock today?
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.
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?
Woidtke Manufacturing's stock currently sells for $16 a share. The stock just paid a dividend of $2.60 a share (i.e., D0 = $2.60), and the dividend is expected to grow forever at a constant rate of 10% a year. What stock price is expected 1 year from now? Do not round intermediate calculations. Round your answer to the nearest cent. What is the estimated required rate of return on Woidtke's stock (assume the market is in equilibrium with the required return equal to the expected return)? Do not round intermediate calculations. Round the answer to two decimal places.
Miltmar Corporation will pay a year-end dividend of $4, and dividends thereafter are expected to grow at the constant rate of 6% per year. The risk-free rate is 5%, and the expected return on the market portfolio is 10%. The stock has a beta of 0.66.Required: a. Calculate the market capitalization rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the intrinsic value of the stock?
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%. a) What would be the likely stock price in year 5? b) What would be per annum rate of return implied by a change in prices from time 0 to time 5?
Hershel Clothiers's stock currently sells for $29.00 a share. It just paid a dividend of $2.75 a share (i.e., D0 = $2.75). The dividend is expected to grow at a constant rate of 3% a year. What stock price is expected 1 year from now? Round your answer to the nearest cent.$ What is the required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. %
Woidtke Manufacturing’s stock currently sells for $22 a share. The stockjust paid a dividend of $1.20 a share (i.e., D0 = $1.20), and the dividend isexpected to grow forever at a constant rate of 10% a year. What stock priceis expected 1 year from now? What is the estimated required rate of returnon Woidtke’s stock (assume the market is in equilibrium with the requiredreturn equal to the expected return)?
4) Suppose stock AAA pays an annual dividend of $2. Shareholders require a rate of return of 12% annually on the stock. a) Use the DDM model to find the price of the stock. b) Suppose the firm just paid a dividend of $2 but it is expected that the dividend rate will grow at a fixed rate such that next year's dividend will be $2.20. What will the dividend payments be over the next 3 years? c) With the growth rate as described in part b), calculate the price of a single share of the stock. d) Now suppose you hear from an well known analyst that even though the firm just paid a $2 dividend, the firm is expected to have supernormal growth rate of 20% over the next 5 years. After that, growth will level off to 10% per year. Over these 5 years, the firm plans to take on massive amounts of debt. So the discount rate investors should use is 15% over those supernormal growth years. After that the discount rate should revert to 12%. Calculate the price of a share of stock.

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