Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Assume that the average firm in C&J Corporation's industry is expected to grow at a constant rate of 5% and that its dividend yield is 8%. C&J is about as risky as the average firm in the industry and just paid a dividend (D0) of $2.5. Analysts expect that the growth rate of dividends will be 50% during the first year (g0,1 = 50%) and 30% during the second year (g1,2 = 30%). After Year 2, dividend growth will be constant at 5%. What is the required
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- Holt Enterprises recently paid a dividend, D0, of $2.00. It expects to have nonconstant growth of 23% for 2 years followed by a constant rate of 3% thereafter. The firm's required return is 17%. How far away is the horizon date? The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. The terminal, or horizon, date is infinity since common stocks do not have a maturity date. 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. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero. What is the firm's horizon, or continuing, value? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is the firm's intrinsic value today, ?…arrow_forwardAssume that the average firm in C&J Corporation's industry is expected to grow at a constant rate of 7% and that its dividend yield is 8%. C&J is about as risky as the average firm in the industry and just paid a dividend (Do) of $1.5. Analysts expect that the growth rate of dividends will be 50% during the first year (90,1 = 50%) and 25% during the second year (91,2 = 25%). After Year 2, dividend growth will be constant at 7%. What is the required rate of return on C&J's stock? What is the estimated intrinsic price per share? Do not round intermediate calculations. Round the monetary value to the nearest cent and percentage value to the nearest whole number. rs: Po: $ 61 40.18 %arrow_forwardGordon 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. $50.50arrow_forward
- 2. Suppose that the consensus forecast of security analysts of NoWork Inc. is that earnings next year will be E1 = $10.00 per share. The company tends to plow back 50% of its earnings and pay the rest as dividends. The CFO estimates that the company’s growth rate will be 8% from now on. (a) Suppose there is uncertainty about the stock’s dividend growth rate. With a probability1/3 the growth rate will be 10%, with a probability 2/3 it will be 7%. What are the respective market values under the two different growth rates? (b) What is the fair price of the stock given the probabilities above? (c) What is the expected growth rate for the stock? Given your calculations, which security is more valuable for an investor: the stock with an 8% growth rate for sure or the stock described in part (a) with an uncertain growth rate?arrow_forwardPortman Industries just paid a dividend of $1.92 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 16.00% over the next year. After the next year, though, Portman’s dividend is expected to grow at a constant rate of 3.20% per year. The risk-free rate (rRFrRF) is 4.00%, the market risk premium (RPMRPM) is 4.80%, and Portman’s beta is 2.00. What is the dividents one year from now? What is the Horizon value? What is the Intrinsic value?arrow_forward4. The dividends that Firm A pays to its stockholders are expected to grow at 18% a year for the next nine years. From t=9 onwards, the growth rate in dividends will drop to 13.5% per year, and the firm expects to be able to sustain it at this level. Assuming that the market capitalization rate is 18% a year, work out the value of the firm assuming that the dividend expected to be paid at t=1 is $4.50.arrow_forward
- Assume that the average firm in C&J Corporation's industry is expected to grow at a constant rate of 4% and that its dividend yield is 8%. C&J is about as risky as the average firm in the industry and just paid a dividend (DO) of $2. Analysts expect that the growth rate of dividends will be 50% during the first year (g0,1 = 50%) and 20% during the second year (g1,2 = 20%). After Year 2, dividend growth will be constant at 4%. What is the required rate of return on C&J's stock? What is the estimated intrinsic price per share? Do not round intermediate calculations. Round the monetary value to the nearest cent and percentage value to the nearestarrow_forwardTerrell Enterprises recently paid a dividend, D0 of $1.50. It expects to have nonconstant growth of 25% for 2 years followed by a constant rate of 6% thereafter. The firms required return is 12%. What is the firms intrinsic value today?arrow_forwardHouston Technology's beta is estimated to be 1.4. The firm's stock is expected to pay a dividend of $5 at the end of this year and is currently selling for $65. The S&P 500 is currently returning 14%. If the firm expects constant growth in the future of 8%, what is the firm's after-tax cost of equity? Assume a tax rate of 40%. (6)arrow_forward
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