PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 16, Problem 22PS
Payout and valuation Look back one last time at Problem 19. How would you value Little Oil if it paid out $500,000 in cash dividends year in and year out, with no expected growth or decline? Remaining
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Suppose instead that the company is about to pay a dividend of $2.00 per share. You also learn that the company is expected to have net income of $100 million, dividends of $50 million, and total equity of $1.5 billion (and that these relationships are expected to be stable). If the relevant required rate of return is 10%, what is the intrinsic value per share of the company’s stock?
1. (a) StockAjust distributed a dividend of $4. It is expected that the company will increase its dividend by 18% in the coming year, 15% in the second
year and 109% in the third year. After the third year, the company will maintain the dividend growth rate at 8% forever. How much would Stock A be
worth today if its yearly required rate of return is 15%?.
2. (b) Suppose you are willing to pay $30 today for a share of stock which you expect to sell at the end of one year for $32. If you require an annual rate
of return of 12 percent, what must be the amount of the annual dividend which you expect to receive at the end of Year 1? [Hint: think of PO = D1/ (R-
Consider the following security:
Brous Metalworks
Earnings Per Share, Time = 0
$2.00
Dividend Payout Rate
0.250
Return on Equity
0.150
Market Capitalization Rate
0.125
Required:
Using the information in the tables above, please calculate the sustainable growth rate, dividends per share, and intrinsic value per share. Then solve for the present value of growth opportunities.
(Use cells A5 to B8 from the given information to complete this question.)
Brous Metalworks
Sustainable Growth Rate
Dividends per share (Next Year)
Intrinsic Value
No-Growth Value Per Share
Present Value of Growth Opportunities (PVGO)
Chapter 16 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 16 - Dividend payments In 2017, Entergy paid a regular...Ch. 16 - Dividend payments Seashore Salt Co. has surplus...Ch. 16 - Repurchases Look again at Problem 2. Assume...Ch. 16 - Repurchases An article on stock repurchase in the...Ch. 16 - Company dividend policy Here are several facts...Ch. 16 - Prob. 7PSCh. 16 - Information content of dividends What is meant by...Ch. 16 - Information content of dividends Does the good...Ch. 16 - Information content of dividends Generous dividend...Ch. 16 - Prob. 11PS
Ch. 16 - Payout policy in perfect capital markets Go back...Ch. 16 - Payout policy in perfect capital markets Go back...Ch. 16 - Payout policy in perfect capital markets Respond...Ch. 16 - Prob. 15PSCh. 16 - Repurchases and the DCF model Hors dAge...Ch. 16 - Repurchases and the DCF model Surf Turf Hotels is...Ch. 16 - Repurchases and the DCF model House of Haddock has...Ch. 16 - Repurchases and the DCF model Little Oil has 1...Ch. 16 - Repurchases and EPS Many companies use stock...Ch. 16 - Dividends and value We stated in Section 16-3 that...Ch. 16 - Payout and valuation Look back one last time at...Ch. 16 - Dividend clienteles Mr. Milquetoast admires Warren...Ch. 16 - Prob. 24PSCh. 16 - Payout and taxes Which of the following U.S....Ch. 16 - Prob. 26PSCh. 16 - Prob. 27PSCh. 16 - Prob. 28PSCh. 16 - Dividend policy and the dividend discount model...Ch. 16 - Prob. 30PS
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