Assume there are three companies that in the past year paid exactly the same annual dividend of $2.41 a share. In addition, the future annual rate of growth in dividends foreach of the three companies has been estimated as follows: . Assume also that as the result of a strange set of circumstances, these three companies all have the samerequired rate of return (r= 12%).a. Use the appropriate DVM to value each of these companies.b. Comment briefly on the comparative values of these three companies. What is the major cause of the differences among these three valuations?a. For Buggies-Are-Us, the value of the company's common shares is $(Round to the nearest cent.)

Major Causes of Differences The primary reason for the differences in valuations among the three…

Answered: Assume there are three companies that…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose that a firm's recent earnings per share and dividend per share are $2.55 and $1.40, respectively. Both are expected to grow at 11 percent. However, the firm's current P/E ratio of 15 seems high for this growth rate. The P/E ratio is expected to fall to 11 within five years. Compute the dividends over the next five years. (Do not round intermediate calculations. Round your answers to 3 decimal places.) Years First year Second year Third year Fourth year Fifth year Dividends
Collins Inc. has just paid its annual dividend of $2.2. The company expects that its dividends in the first three years will be $1.9, $2.3, and $2.7, respectively. The company estimates an EPS in year three to be $5.6 , the EPS in year four to be $6.0, and the median leading industry P/E in year three to be 20. Calculate Collins Inc. current value if the cost of equity is 14%.
Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $3.25 next year. The growth rate in dividends for all three companies is 5 percent. The required return for each company's stock is 9.60 percent, 11.70 percent, and 14.40 percent, respectively. Required: (a) What is the stock price for Red. Inc., Company? (b) What is the stock price for Yellow Corp. Company? (c) What is the stock price for Blue Company?
Entity X distributed a dividend of $ 50 per share last year. If the business is expected to distribute the same amount of dividends in the following years and the minimum return rate expected by the investors is 25%, what is the real value of the stocks of the X entity? a) 36 b) 48 c) 100 d) 200 e) 64
A4) Finance You estimate that the net income for a company next year is a uniform distribution with a minimum of $106 million and a maximum of $127 million. What is the probability that the company's net income is less than or equal to $117 million? Enter answer in percents, to two decimal places.
1.A Assume that a Peruvian company, DMB LLC, just reported its earnings this year. The reported revenue was $10 million and the reported cost was $9 million. The discount rate is 8%. Mark ALL the CORRECT statements. For this question, profit = revenue - cost. Hint: Apply the Gordon Formula to the profits of the firm. a) If the profit is expected to be constant, the present value of all the company's future profits is $125 million. b) If the profit is expected to grow 3% annually, the present value of all the company's future profits is $20 million. c) If the profit is expected to grow 4% annually, the present value of all the company's future profits is $25.75 million. d) If the profit is expected to grow 6% annually, the present value of all the company's future profits is $50 million. e) If the profit is expected to grow 10% annually, the present value of all the company's future profits is negative.
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Q) For a given company studies indicate that due to the nature of contract business, any excess funds generated are expected to earn at a rate of 11% per year. Use the ROIC method to determine the rate of return on invested capital value for the given cash flow series.(X0=$2,000, X1=$-900, X2=$-7,000, X3=$6,900) Explain it early but not in excel works. Typed or handwriting onlys
a) Newdeal Inc. follows a policy of distributing 45% of its profits and investing the rest in the operations of the company. The average profitability of its assets is 20% and the current year dividend per face value of 1₺ is 30%. Compute the intrinsic value of a stock of this company for an investor whose minimum required rate of return is 25%. b) Compute the value of this stock one year later under the same assumptions.
North Side Corp’s dividends for year 1, year 2, year 3, and expected share price for year 3 are: D1=$1.95, D2=$2.10, D3=$2.18, and P3=$95 respectively. What is the company’s current share price given the required return of 8 percent?
Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following data: The yield on the company’s outstanding bonds is 8.0%, its tax rate is 35%, the next expected dividend is $0.80 a share, the dividend is expected to grow at a constant rate of 7.00% a year, the price of the stock is $17.50 per share, the flotation cost for selling new shares is F = 8%, and the target capital structure is 30% debt and 70% common equity. What is the firm's WACC, assuming it must issue new stock to finance its capital budget?
Consider the following data (be careful there might be some "unnecessary" information). EBIT = 176 Interest expense = 10 Tax rate = 30% Depreciation = 38 Net working capital = 30 Increase in net working capital = 10 Beginning of period Net PP&E = 50 Capex = 16 What is the free cash flow of the firm that year?

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