Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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The current dividend, D0, of the stock of Sun Devil Corporation is $4 per share. Under present conditions, this dividend is expected to grow at a rate of 6 percent annually for the foreseeable future. The beta of Sun Devil stock is 1.7. The risk-free
- At what price would you expect Sun Devil common stock to sell?
$
- If the risk-free rate of return declines to 5 percent, what will happen to Sun Devil’s stock price? (Assume that the expected market rate of return remains at 15%, the
dividend growth rate remains at 6%, and D0 remains at $4.)
$
- Sun Devil’s management is considering acquisitions in the machine tool industry. Management expects the firm’s beta to increase to 1.8 as a result of these acquisitions. The dividend growth rate is expected to increase to 9 percent annually. Would you recommend this acquisition program to management? (Assume the same initial conditions that existed in part a.)
Based on stock price of $ , the acquisition program be recommended.
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- Analysts expect Costco stock to pay a dividend of $3.70 in 1 year and is expected to sell for $374.41 at that time. If the required return is 5.0%, what is the value of the stock?arrow_forwardYour broker has recommended that you purchase stock in Beacan, Inc. Beacan recently paid its annual dividend ($7.00). Dividends have consistently grown at a rate of 2.50%. Analysts estimate that the stock has a beta of 1.42. The current risk-free rate is 2.80% and the market risk premium (RM - RF) is 6.50%. Assuming that CAPM holds, what is the intrinsic value of this stock?arrow_forwardThe risk-free rate of return is 1 percent, and the expected return on the market is 7.1 percent. Stock A has a beta coefficient of 1.6, an earnings and dividend growth rate of 7 percent, and a current dividend of $1.50 a share. Do not round intermediate calculations. Round your answers to the nearest cent. What should be the market price of the stock? $ If the current market price of the stock is $55.00, what should you do? The stock be purchased. If the expected return on the market rises to 12.4 percent and the other variables remain constant, what will be the value of the stock? $ If the risk-free return rises to 2 percent and the return on the market rises to 13 percent, what will be the value of the stock? $ If the beta coefficient falls to 1.3 and the other variables remain constant, what will be the value of the stock? $ Explain why the stock’s value changes in c through e. The increase in the return on the market the…arrow_forward
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