PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 4, Problem 23PS
Growth opportunities Alpha Corp’s earnings and dividends are growing at 15% per year. Beta Corp’s earnings and dividends are growing at 8% per year. The companies’ assets, earnings, and dividends per share are now (at date 0) exactly the same. Yet PVGO accounts for a greater fraction of Beta Corp’s stock price. How is this possible? (Hint: There is more than one possible explanation.)
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Trend-Line Incorporated has been growing at a rate of 7% per year and is expected to continue to do so indefinitely. The next dividend is expected to be $6 per share.
If the market expects a 12% rate of return on Trend-Line, at what price must it be selling?
If Trend-Line’s earnings per share will be $9 next year, what part of its value is due to assets in place?
If Trend-Line’s earnings per share will be $9 next year, what part of its value is due to growth opportunities?
Company Z earnings and dividends per share will grow indefinitely by 4.1% a year if next year's dividend is $9.0. The market capitalization rate is 13.9%. If Company Z were to distribute all its earnings, it could maintain a level dividend stream of $11.3 a share. How much is the market actually paying per share for growth opportunities?
A. -11.6
B. 33.8
C. 15.0
D. 10.5
If a firm’s earnings per share grew from $1 to $2 over a 10-year period, the total growthwould be 100%, but the annual growth rate would be less than 10%. True or false? Explain.(Hint: If you aren’t sure, plug in some numbers and check it out.)
Chapter 4 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 4 - Stock markets True or false? a. The bid price is...Ch. 4 - Stock quotes a. I would like to sell 1000 shares...Ch. 4 - Stock quotes Here is a small part of the order...Ch. 4 - Stock quotes Go to finance.yahoo.com and get...Ch. 4 - Valuation by comparables Look up P/E and P/B...Ch. 4 - Dividend discount model True or false? a. All...Ch. 4 - Dividend discount model Respond briefly to the...Ch. 4 - Dividend discount model Company X is expected to...Ch. 4 - Dividend discount model Company Y does not plow...Ch. 4 - Constant-growth DCF model Company Zs earnings and...
Ch. 4 - Prob. 11PSCh. 4 - Constant-growth DCF model Pharmecology just paid...Ch. 4 - Prob. 13PSCh. 4 - Cost of equity capital Under what conditions does...Ch. 4 - Cost of equity capital Each of the following...Ch. 4 - Two-stage DCF model Company Z-prime is like Z in...Ch. 4 - Two-stage DCF model Consider the following three...Ch. 4 - Two-stage DCF model Company Qs current return on...Ch. 4 - Two-stage DCF model Compost Science Inc. (CSI) is...Ch. 4 - Growth opportunities If company Z (see Problem 10)...Ch. 4 - Growth opportunities Alpha Corps earnings and...Ch. 4 - Prob. 24PSCh. 4 - Prob. 25PSCh. 4 - Prob. 26PSCh. 4 - Horizon value Suppose the horizon date is set at a...Ch. 4 - Valuing a business Permian Partners (PP) produces...Ch. 4 - Valuing a business Construct a new version of...Ch. 4 - Valuing a business Mexican Motors market cap is...Ch. 4 - Valuing a business Phoenix Corp. faltered in the...Ch. 4 - Constant-growth DCF formula The constant-growth...Ch. 4 - DCF valuation Portfolio managers are frequently...Ch. 4 - Valuing a business Construct a new version of...
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