QUESTION 17Find the intrinsic value of the stock that pays a dividend of $4.12 and has a growth rate of 11.5% for 4 years then itstabilizes at a long-run growth rate of 2.4%. The stock has a Beta of 1.12, the risk free rate is 4.0% and the market return is6.12%.A. $75.68B. $87.92C. $122.11D. $146.70

The projected or computed value of a business, stock, money, or product that is ascertained via…

Answered: Find the intrinsic value of the stock…

Business

Finance

Find the intrinsic value of the stock stabili

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter9: Stocks And Their Valuation

Section: Chapter Questions

Problem 13P: CONSTANT GROWTH You are considering an investment in Justus Corporations stock, which is expected to...

See similar textbooks

Related questions

Q: The interest rate a company pays on 1-year, 5-year, and 10-year loans is a partly determined by…

A: A loan is a financial arrangement where one party, typically a lender such as a bank or financial…

Q: An investor purchased a 182-day, $10,000.00 T - bill on its issue date for $ 9910.29. After holding…

A: The objective of the question is to calculate the original yield of the T-bill, the selling price of…

Q: You find the following corporate bond quotes. To calculate the number of years until maturity,…

A: > Given data:> Par value = 2000> yield = 6.18%

Q: Northwest Utility Company faces Increasing needs for capital. Fortunately. It has an Aa3 credit…

A: Weighted cost of the capital includes the weighted cost of debt, weighted cost of equity and…

Q: 12. Suppose Hunter Valley is deciding whether to purchase new accounting software. The payback for…

A: The payback period denotes the duration it takes for an investment to recover its initial…

Q: The Cambro Foundation, a nonprofit organization, is planning to invest $125,303 in a project that…

A: Discounted cash flow: Discounted cash flow (DCF) valuation is a formula that is used to discounts…

Q: Required information [The following information applies to the questions displayed below.] A pension…

A: Portfolio refers to the pooling of assets in such a manner that risk can be minimized to the…

Q: New equipment costs $700,000 and is expected to last for four years with no salvage value. During…

A: CCA stands for Capital Cost Allowance. It's a tax term used in Canada to describe the rate at which…

Q: What will be TapDance's WACC? (Round your answer to 2 decimal places.)

A: The weighted average cost of capital represents the total cost of a company's borrowing and share…

Q: The followings are the instructions for this case. Provide the excel file where the computations are…

A: To provide the answers to your questions, I'll first gather the required information from…

Q: Required: a.) Compute the company's expected profit (net income) for the upcoming fiscal period. b.)…

A: Contribution Margin -The contribution margin is a business's sales revenue less its variable costs…

Q: The risk-free rate is 5.25%. The expected return on the market is 12% with a standard deviation of…

A: Risk free rate = 5.25%Expected return on market = 12%Standard deviation of market = 18%Expected…

Q: Principle: $24,000 Interest Rate: 12% Date Borrowed: May 04 Date Repaid :Jul 09 Time:…

A: In simple interest there is interest on principal amount and no interest on interest and no…

Q: we believe we can sell 90, security devices per year at $150 per piece. They (variable cost). Fixed…

A: The term "net present value" describes the capital budgeting methods used to assess the project's or…

Q: Complete the following using the present value formula or financial calculator. Note: Do not round…

A: Amount desired at the end of the period = $7,300Number of years = 5 yearsInterest rate = 4%

Q: The following table shows the nominal returns on Brazilian stocks and the rate of inflation. Year…

A: Returns refer to the income earned on an investment throughout the investment period, it constitutes…

Q: Rate Maturity Month/Year Bid Asked Change Ask Yield ?? May 32 103.4742 103.5470 +.3145 6.199 5.724…

A: Yield to maturity:Yield to maturity (YTM) is a crucial concept in finance, particularly in bond…

Q: a. Many years ago, Castles in the Sand Incorporated issued bonds at face value at a yield to…

A: The bond price is the cost of a bond. It is the cost of purchasing that assurance from another…

Q: 100,000, 30-year, 4.3% mortgage after 10 years

A: Outstanding principal:The term "outstanding principal" refers to the remaining amount of money owed…

Q: An investor purchased a 182-day, $10,000.00 T - bill on its issue date for $ 9910.29. After holding…

A: The objective of the question is to calculate the original yield of the T-bill, the selling price of…

Q: Lingenburger Cheese Corporation has 6.6 million shares of common stock outstanding, 235,000 shares…

A: Weighted average cost of capital is a metric which considers the market value of capital sources to…

Q: Crane Company is considering buying a new farm that it plans to operate for 10 years. The farm will…

A: Capital budgeting refers to the procedure that the company undergoes when it needs to invest in the…

Q: A stock just paid a dividend of $2.35. The dividend is expected to grow at 26.20% for five years and…

A: As per the dividend discount model value of the stock will be equal to the present value of the…

Q: You need a particular piece of equipment for your production process. An equipment-leasing company…

A: NPV of lease is the present value of cash flow of buying minus present value of cash flow from…

Q: Akagera Finance Plc has two service departments, the Human Resources (HR) Department and the…

A: To allocate the budgeted costs of the HR and Computing departments to the Deposit and Loan…

Q: Compost Science Incorporated (CSI) is in the business of converting Boston's sewage sludge into…

A: b.Stock price = $103.82Explanation:Step 1:b.The cost of equity can be calculated as follows:Current…

Q: e Scott, Inc. is currently unlevered, with 50 shares outstanding. It wants to finance a shopping…

A: Earning Before Interest and Tax : It shows the profitability of the business, It is calculated by…

Q: Tristan has a mortgage of $330,000 through his bank for property purchased. The loan is repaid by…

A: The interest is paid on the borrowed funds at fixed rates. the amount of interest paid in year 1 is…

Q: Estimating Share Value Using the DCF Model Following are forecasts of Home Depot's sales, net…

A: Value per share is the ratio computed by dividing the common shareholders by the number of…

Q: Mary purchases a property with the help of a fixed-rate loan. Why is Mary considered the mortgagor…

A: In the world of real estate, property financing is the broad balance between objectives and…

Q: You are buying a house and will borrow $325,000 on a 25-year fixed rate mortgage with monthly…

A: Mortgage:A mortgage is a financial arrangement where a borrower obtains funds from a lender to…

Q: Someone offers to buy your car for four, equal annual payments, beginning 2 years from today. If you…

A: Present value of car = $9,000Interest rate = 10%Number of annual payments = 4To find: Minimum annual…

Q: Describe the types of shares held by the company. What can you say about the history of company…

A: Share valuation is the process of determining the fair or intrinsic value of a company's stock. It…

Q: A student loan is offered under the following conditions: credit of 30, 000 euros at 3% over a…

A: The objective of the question is to calculate the constant annuities of a student loan and to draw…

Q: Andouille Spices, Incorporated, has the following mutually exclusive projects available. The company…

A: Introduction:Payback period is the time with in which the intial investment is recovered

Q: Required information [The following information applies to the questions displayed below.] A pension…

A: T-bill market rate = 5.5%Expected return on stock fund (S) = 16%Expected return on bond fund (B) =…

Q: A new computer system will require an initial outlay of $17,500, but it will increase the firm’s…

A: NPV of the project at 14% is -1,263.98The project should be rejected Since NPV is negative. IRR of…

Q: Duo Corporation is evaluating a project with the following cash flows: Year Cash Flow -$ 28,300…

A: Modified internal rate of return (MIRR):MIRR considers both the cost of capital for financing the…

Q: ou find the following Treasury bond quotes. To calculate the number of years until maturity, assume…

A: Par value =$1,000Payment frequencies = 2Current year = May 2022Maturity year = May 2049Coupon rate =…

Q: Andouille Spices, Incorporated, has the following mutually exclusive projects available. The company…

A: YearProject FProject…

Q: In the coming week, the outcomes from a class action lawsuit will result in a shock to the price of…

A: Straddle strategy is the option strategy in which investor purchase call and put of same strike…

Q: Compound Interest How long will it take $7,000.00 to become $11,750.00 at 8.25% compounded weekly?…

A: The objective of this question is to find out the time it will take for an initial amount of…

Q: I need solution fast please

A: The objective of the question is to find out the remaining balance on the loan after Xen has made 84…

Q: Question 15 You own a portfolio that has $3,026 invested in Stock A and $4,300 invested in Stock B.…

A: The objective of the question is to calculate the expected return on the portfolio which is a…

Q: Ashton Bishop is the debt manager for World Telephone, which needs €3.45 billion Euro financing for…

A: A currency swap, often called a cross-currency swap, is the exchange of one currency's interest and…

Q: You have decided to buy a car that costs $31,000. Since you do not have a big down payment, the…

A: Compound = Monthly = 12Present Value = pv = $31,000Interest Rate = r = 6.27 / 12 = 0.5225%Time = t =…

Q: u are given the following information concerning a firm: sets required for operation: $5,700,000…

A: The financial leverage can be referred as the usage of the debt in the capital structure which has…

Q: Which of the following statements represent a weakness or limitation of ratio analysis? Check all…

A: The following statements represent a weakness or limitation of ratio analysis:1. Different firms may…

Q: Taussig Corp.'s bonds currently sell for $1,140. They have a 6.35% annual coupon rate and a 20-year…

A: Current selling Price $ 1,140.00Par Value $ 1,000.00Tenure, years20Annual coupon…

Q: Tamarisk Furniture Corp. is nationally recognized for making high-quality products. Management is…

A: Cannibalization of existing sales occurs when the introduction of a new product or service within a…

Question

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: About the Intrinsic Value

VIEW

Step 2: Calculation

VIEW

Step 3: Calculation of Intrinsic Value

VIEW

Solution

VIEW

Step by step

Solved in 4 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Return on Common Stock You buy a share of The Ludwig Corporation stock for $21.40. You expect it to pay dividends of $1.07, $1.1449, and $1.2250 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $26.22 at the end of 3 years. Calculate the growth rate in dividends. Calculate the expected dividend yield. Assuming that the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to obtain the expected total rate of return. What is this stock’s expected total rate of return (assume the market is in equilibrium with the required return equal to the expected return)?
VALUATION OF A CONSTANT GROWTH STOCK Investors require a 15% rate of return on Levine Companys stock that is, rs = 15%). a. What is its value if the previous dividend was D0 = 2 and investors expect dividends to grow at a constant annual rate of (1) 5%, (2) 0%, (3) 5%, or (4) 10%? b. Using data from Part a, what would the Gordon (constant growth) model value be if the required rate of return was 15% and the expected growth rate was (1) 15% or (2) 20%? Are these reasonable results? Explain. c. Is it reasonable to think that a constant growth stock could have g rs? Why or why not?
QUESTION 4 What is the expected annual return for a stock that is priced at $64.78, is expected to pay a dividend of $2.00 every quarter forever, and is expected to pay its next dividend in 3 months? O 12.35% (plus or minus 2 bps) O3.09% (plus or minus 2 bps) O 12.93% (plus or minus 2 bps) O6.17% (plus or minus 2 bps) O the answer cannot be obtained based on the given information
QUESTION 1 Suppose you purchased a stock a year ago. Today, you receive a dividend of $16 and you sell the stock for $99. If your return was 11%, at what price did you buy the stock? QUESTION 2 A stock's risk premium is equal to the: a. risk-free rate plus the expected market risk premium b. expected market risk premium times beta c. expected market return times beta d. treasury bill yield plus the expected market return.
Question 24 Reddick Enterprises' stock currently sells for $35.50 per share. The dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock (1/Yr) is 9.00%. What is the stock's expected dividend in 3 years (Div3)? 146 O 224 176 2.00 O 124
Question 25 Goode Inc.'s stock has a required rate of return of 14.2%, and it sells for $65 per share. Goode's dividend is expected to grow at a constant rate of 3.3%. What is the next expected dividend, D1? O $6.09 $5.59 A O $7.09 O $6.59 O $7.59
Question three The share price of a company is 200p. Its expected next dividend is 5p. The dividend (and share price) growth rate is expected to be 4% p.a. The risk-free interest rate is 4.5% p.a. The share has a beta of 1.2 and the expected rate of return on the stock market as a whole is 8.5% p.a. (a) Estimate the expected (forecast) rate of return on the share. (b) Estimate the required rate of return. (c) Consider whether the share is suitable for purchase.
Select the best Question 24 Reddick Enterprises' stock currently sells for $35.50 per share. The dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock (I/Yr) is 9.00%. What is the stock's expected dividend in 3 years (Div3)? O 146 O 224 O 1.76 O 2.00 O 1.24
Stock Beta Current Price Expected Price Expected Dividend X 0.8 $12.50 $13.10 $0.80 Y 1.1 $ 8.25 $ 9.76 $0.20 Z 2.1 $25.70 $30.04 $0.00 The expected price is in one year. The expected market return is 11.5% and the risk-free rate is 4.5%. According to the Capital Asset Pricing Model what rate of return are the stocks expected to earn Are the three stocks overvalued or undervalued in the market today Given the forecast of price and dividend for stock Z, what is its current fair market price based on the CAPM?
Question 3 You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a ¢1,000 investment in each stock under four different economic conditions has the following probability distribution: Returns Probability Economic Condition Stock X Stock Y 0.1 Recession -50 -100 0.3 Slow Growth 20 50 0.4 Moderate Growth 100 130 0.2 Fast Growth 150 200 (a) Which of the investments has a better return and why? (b) Which of the investments is relatively less risky and why? (c) What type of association exists between the two-investment options X and Y? Interpret your results.
QUESTION 4 You are considering a Stock B that pays a dividend of RM1.5. The beta coefficient of B is 1.3. The risk free return is 7%, while the market average return is 13%. a. What is the required return for Stock B? b. If Stock B is selling for RM10 a share, is it a good buy if you expect earnings and dividends to grow at 6%?
#26 The market price of a stock is $21.68 and it is expected to pay a dividend of $1.13 next year. The required rate of return is 11.04%. What is the expected growth rate of the dividend? Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))