Your company has the following expected dividends over the next 6 years: $2.00, $2.40, $3.20.$3.60, $4.20, and $4.41. Note that starting in Year 5, dividends will begin to grow at a constant,long-run sustainable growth rate of 5 percent (D6 $4.20 x 1.05 $4.41, etc.). Further, the risk-free rate is 4.0 percent, the Risk Premium on the Market is 6.0 percent, and the company has a betaof 1.50.Calculate the current price of this stock at Year 0.Ⓒ$47.84O $52.72$43.75O $37.29O $40.27

Present value is the estimation of the current value of future return which is likely to be received…

Answered: Your company has the following expected…

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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Management has recently announced that expected dividends for the next four years will be as follows: Year Dividend 1 GH¢2.50 2 GH¢3.25 3 4 GH¢4.00 GH¢5.00 For the subsequent years, management expects the dividend to grow at 6 percent annually. If the risk-free rate is 7.5 percent, the return on the market is 13.5 percent, and the firm's beta is 1.6, what is the maximum price that you should pay for this stock?
Your company has the following expected dividends over the next 6 years: $2.00, $2.40, $3.20, $3.60, $4.20, and $4.41. Note that starting in Year 5, dividends will begin to grow at a constant, long-run sustainable growth rate of 5 percent (D6 = $4.20 x 1.05= $4.41, etc.). Further, the risk-free rate is 4.0 percent, the Risk Premium on the Market is 6.0 percent, and the company has a beta of 1.30. Calculate the current price of this stock at Year 0. O $43.75 $40.27 $52.72 O $47.84 O $37.29
Whizcom Inc. is expected to pay a dividend of $1 next period. Dividends are expected to grow at 2% per year and the investors require a return of 12%. a) What would be the likely stock price in year 5? b) What would be per annum rate of return implied by a change in prices from time 0 to time 5?
TechWorld Ltd is expecting to pay out a dividend of $2.50 next year. After that it expects its dividend to grow at 7 percent for the next four years. What is the present value of dividends over the next five-year period if the required rate of return is 10 percent? $10.75 $9.80 $11.88 $11.50
you are forecasting future free cash flows as part of your effort to value a stock. You believe the Year six free cash flows will be $1 million, that the growth rate after Year 6 will be 3%, and that the required rate of return on equity for this stock is 8%. Compute the value today of this “continuing value”, assuming constant growth. Note that the present value factor for a dollar to be received at the end of year 6 is 0.63 and the present value of a dollar received at the end of year five is 0.68, when the discount rate is 8%.
A company expects dividends to grow at 18 percent per year for the next 10 years before leveling off at 4 percent forever. The required rate of return on the company’s stock is 10 percent. If the dividend per share just paid was $2, what is the stock price? (Hint: the dividends paid in the next 10 years can be regarded as a growing annuity, which we learned in Chapter 6.) Please use a HP 10bii+ Financial Calculator
Consider a firm that has just paid a dividend of $2. An analyst expects dividends to grow at a rate of 8% per year for the next five years. After that dividends are expected to grow at a normal rate of 5% per year. Assume that the appropriate discount rate is 7%. What would be the value of the dividends after five years?
Whizcom Inc. is expected to pay a dividend of $1 next period. Dividends are expected to grow at 2% per year and the investors require a return of 12%. i) Compute the current stock price for Whizcom Inc.ii) What would be the likely stock price in year 5?iii) What would be per annum rate of return implied by a change in prices from time 0 to time 5?
As an analyst, you have gathered the following information on a company you are tracking. The current annual dividend is $1.75. Dividends are expected to grow at a rate of 14% over the next 4 years, and then decline linearly to 5% over the next 7 years, and then remain at a long term equilibrium growth rate of 5% in perpetuity; the required return is 10%. Calculate the value of the company
As an analyst, you have gathered the following information on a company you are tracking. The current annual dividend is $0.75. Dividends are expected to grow at a rate of 12% over the next 3 years, and then decline to a 4% over the next 6 years, and then remain at a long term equilibrium growth rate of 4% in perpetuity. The required return is 9%. Calculate the value of the company
Company A is a worldwide delivery company that is expected to generate a dividend (per share) of $1.40 one year from now (i.e. at t=1). You are expecting that on average Company A's dividends will grow at 5% each year after that into the indefinite future. Assume for simplicity that all dividends are paid at the end of each year. Suppose that the appropriate discount rate for these dividends is 10%. a. What is the current stock price for Company A? Assume that any dividend at t=0 has already been paid out. b. What do you expect the stock price of Company A to be next year (i.e. at t=1) immediately after the dividend has been paid out? c. What is the expected return for holding the stock of Company A over the year ahead? Hint: Find the IRR on the expected cash flows from buying and holding the stock for one year. The cash flows should include the purchase and sale of the stock as well as the dividend you will receive
You expect that Microsoft will pay a dividend of $1.50 in one year, $1.75 in two years, and $2.00 in three years. After that, dividends are expected to grow at 3% per year. If your required rate of return is 8%, what should be the price of Microsoft today according to the Dividend Discount Model?

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