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-freerate is 4.0 percent, the Risk Premium on the Market is 6.0 percent, and the company has a beta of1.30.Calculate the current price of this stock at Year 0.O $43.75$40.27$52.72O $47.84O $37.29

The required return rate on the stock will be used for finding the current worth of the stock which…

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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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 1.50. Calculate the current price of this stock at Year 0. Ⓒ$47.84 O $52.72 $43.75 O $37.29 O $40.27
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%.
An analyst produces the following series of annual dividend forecasts for company D: Expected dividend (end of) year t+1 = 10 euros; Expected dividend (end of) year t+2 = 20 euros; Expected dividend (end of) year t+3 = 10 euros. The analyst further expects that company D dividend will grow indefinitely at a rate of 2 percent after year t+3. Company D cost of equity equals 10 percent. Under these assumptions, calculate the analysts estimate of company D equity value at the end of year t.
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?
Consider the following security, which you expect will grow rapidly for three years followed by a steady growth indefinitely. Emerson Tool and Die Company Earnings Per Share, 2020 $2.50 Dividend Payout Rate $0.60 Extradordinary Growth Rate 0.35 Sustainable Growth Rate 0.05 Market Capitalization Rate 0.15 Required: Using the information in the tables above, please calculate the cash flows per period and the price of this stock. (Use cells A5 to B9 from the given information to complete this question.) Time Cash Flow 1 2 3 Horizon Value Present Value (Price)
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?
problems should be solved by using a financial calculator or MS excel spreadsheet. Accordingly, you must show the values of all relevant time valu of money variables ABC stock selss for $60.25 per shar. Its required rate of return is 10.25%. The dividend is expected to grow at a constant rate of 7.00% per year. What is the expected year-end dividend, D1?
Management has recently announced that expected dividends for the next three years will be as follows: YEAR DIVIDEND 1 1.2 2 1.6 3 2.5 After year 3, dividends are expected to grow at the rate of 3.5% per year. An appropriate required return for the stock is 13%. What should be the stock worth today?
Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value? Use the dividend values provided in the table below for your calculations. Do not round your intermediate calculations. Year Growth ΝΑ rate Dividends $0.000 0 1 2 3 4 5 6 NA ΝΑ ΝΑ 90.00% 45.00% 8.00% $0.000 $0.000 $0.250 $0.475 $0.689 $0.744
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?
Show Detailed Steps When Solving The Following Question: Gordon Growth Company is expected to pay a dividend of $4 next period, and dividends are expected to grow at 6% per year. The required return is 16%. What is the current price? What is the price expected to be in year 4?
Suppose there is a stock in which the profit share will grow by 20% for 2 years and the profit share will decrease to 15% in the following years. Find the value of the stock if the dividend paid recently is TL 2 (D0 = 2) and the required return rate desired by the investor is 20%.

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