Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
Bartleby Related Questions Icon

Related questions

Question

Answer required parts for a thumbs up!!!

The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 20% per year for the
next three years and then to level off to 5% per year forever. You think the appropriate market capitalization rate is 15% per year.
Required:
a. What is your estimate of the intrinsic value of a share of the stock?
Note: Use intermediate calculations rounded to 4 decimal places. Round your answer to 2 decimal places.
b. If the market price of a share is equal to this intrinsic value, what is the expected dividend yield?
Note: Use intermediate values rounded to 2 decimal places. Round your answer to 2 decimal places.
c. What do you expect its price to be one year from now?
Note: Use intermediate values rounded to 4 decimal places. Round your answer to 2 decimal places.
d-1. What is the implied capital gain?
Note: Use intermediate values rounded to 2 decimal places. Round your answer to 4 decimal places.
d-2. Is the implied capital gain consistent with your estimate of the dividend yield and the market capitalization rate?
a. Intrinsic value per share
b. Expected dividend yield
c. Expected price
d-1. Implied Capital Gain
d-2. Is this consistent with the DDM?
%
expand button
Transcribed Image Text:The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 20% per year for the next three years and then to level off to 5% per year forever. You think the appropriate market capitalization rate is 15% per year. Required: a. What is your estimate of the intrinsic value of a share of the stock? Note: Use intermediate calculations rounded to 4 decimal places. Round your answer to 2 decimal places. b. If the market price of a share is equal to this intrinsic value, what is the expected dividend yield? Note: Use intermediate values rounded to 2 decimal places. Round your answer to 2 decimal places. c. What do you expect its price to be one year from now? Note: Use intermediate values rounded to 4 decimal places. Round your answer to 2 decimal places. d-1. What is the implied capital gain? Note: Use intermediate values rounded to 2 decimal places. Round your answer to 4 decimal places. d-2. Is the implied capital gain consistent with your estimate of the dividend yield and the market capitalization rate? a. Intrinsic value per share b. Expected dividend yield c. Expected price d-1. Implied Capital Gain d-2. Is this consistent with the DDM? %
Expert Solution
Check Mark
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Text book image
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:9781260013962
Author:BREALEY
Publisher:RENT MCG
Text book image
Financial Management: Theory & Practice
Finance
ISBN:9781337909730
Author:Brigham
Publisher:Cengage
Text book image
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Text book image
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Text book image
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education