Financial analysts forecast Safeco Corp.’s (SAF) growth rate for the future to be 8 percent. Safeco’s recent dividend was $0.88. What is the value of Safeco stock when the required return is 12 percent? (Round your answer to 2 decimal places.) VALUE OF STOCK
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Q18
Financial analysts
What is the value of Safeco stock when the required return is 12 percent? (Round your answer to 2 decimal places.)
VALUE OF STOCK
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- CALCULATING THE WACC Here is the condensed 2019 balance sheet for Skye Computer Company (in thousands of dollars): Skyes earnings per share last year were 3.20. The common stock sells for 55.00. last years dividend (D0) was 2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skyes preferred stock pays a dividend of 3.30 per share, and its preferred stock sells for 30.00 per share. The firms before-lax cost of debt is 10%, and its marginal tax rate is 25%. The firms currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skyes beta is 1.516. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals 1.2 million. a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. b. Now calculate the cost of common equity from retained earnings, using the CAPM method. c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r1 and rs as determined by the DCF method, and add that differential to the CAPM value for rs.) d. If Skye continues to use the same market-value capital structure, what is the firms WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock?The Castle Company recently reported net profits after taxes of $15.8 million. It has 2.5 million shares of common stock outstanding and pays preferred dividends of $1 million a year. The company’s stock currently trades at $60 per share. Compute the stock’s earnings per share (EPS). What is the stock’s P/E ratio? Determine what the stock’s dividend yield would be if it paid $1.75 per share to common stockholders.Assume that Temp Force is a constant growth company whose last dividend (D0, which was paid yesterday) was 2.00 and whose dividend is expected to grow indefinitely at a 6% rate. (1) What is the firms current estimated intrinsic stock price? (2) What is the stocks expected value 1 year from now? (3) What are the expected dividend yield, the expected capital gains yield, and the expected total return during the first year?
- Financial analysts forecast Limited Brands (LTD) growth rate for the future to be 12.5 percent. LTD’s recent dividend was $0.95. What is the value of Limited Brands stock when the required return is 14.5 percent? (Round your answer to 2 decimal places.)What is the current price of a share of stock when last year’s dividend was P3.00, the growth rate is 6 percent, and the investor's required rate of return is 12 percent? A. P25.00 B. P26.50 C. P50.00 D. P53.00ABC justpaid a dividend of D0 = $4. Analysts expect the company’s dividend to grow by33% this year, by 28% in Year 2, and at a constant rate of 6% in Year 3 andthereafter. The required return on this stock is 17%. What is the best estimateof the stock’s current market value?Note: Enter your answer rounded off to two decimal points.Do not enter $ or comma in the answer box. For example, if your answer is$12.345 then enter as 12.35 in the answer box.
- A share of common stock has just paid a dividend of $2.50 (D0). If the expected long-run growth rate for this stock is 5 percent per year, and if investors require a 13 percent rate of return, what is the price of the stock? $27.50 $28.89 $26.71 $32.81 $30.913. Financial analysts forecast Safeco Corp.s (SAF) growth rate for the future to be 12 percent Safeco's recent dividend was $1.60. What is the value of Safeco stock when the required return is 14 percent? (Round your answer to 2 declmal places.) Value of stock here to search 0 0 0 O F4 F5 F7What is the current price of a share of stock when last year's dividend was P3.00, the growth rate is 6 percent, and the investor's required rate of return is 12 percent? P50.00 О Р25.00 P26.50 P53.00
- 1. An analyst estimates that a stock will pay a $1 dividend next year and that it will sell for $40 at year-end. If the required rate of return is 14%, what is the value of the stock? A. $34.60. B. $35.52. C. $35.96.Here are forecasts for next year for two stocks: Stock A Stock B Return on equity 18 % 12 % Earnings per share $ 2.00 $ 1.50 Dividends per share $ 1.00 $ 1.00 a. What are the dividend payout ratios for each firm? (Do not round intermediate calculations. Enter your answers as a percent rounded to the nearest whole number.) b. What are the expected dividend growth rates for each stock? Assume dividend has a steady growth for both stocks. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) c. If investors require a return of 18% on each stock, what are their values? (Do not round intermediate calculations. Round final answers to 2 decimal places.)
