Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 4, Problem 7PS
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A decrease in which of the following will increase the current value of a share according to the dividend growth model?
Required rate of return.
Dividend amount.
Dividend growth rate.
Number of future dividends, provided the number is less than infinite.
13... What conditions are necessary for the Constant Dividend Growth Model to be used? Select all that apply.
a.The required rate of return must be greater than the dividend growth rate.
b.The dividend must be at least $3.
c.The company must pay taxes.
d.The company's dividend growth rate must be expected to remain constant.
Assuming the company continues its current growth rate, what is the value per share of the company’s stock?
Chapter 4 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 4 - True/false True or false? a. All stocks in an...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 - Dividend discount model Company Z-prime is like Z...Ch. 4 - Dividend discount model If company Z (see Problem...Ch. 4 - Prob. 8PSCh. 4 - Prob. 9PSCh. 4 - Free cash flow Under what conditions does r, a...
Ch. 4 - Prob. 11PSCh. 4 - Prob. 12PSCh. 4 - Horizon value Suppose the horizon date is set at a...Ch. 4 - Stock quotes Go to finance.yahoo.com and get...Ch. 4 - Two-stage DCF model Consider the following three...Ch. 4 - Constant-growth DCF model Pharmecology just paid...Ch. 4 - Two-stage DCF model Company Qs current return on...Ch. 4 - Cost of equity capital Each of the following...Ch. 4 - Growth opportunities Alpha Corps earnings and...Ch. 4 - Prob. 23PSCh. 4 - Two-stage DCF model Compost Science Inc. (CSI) is...Ch. 4 - DCF and free cash flow Permian Partners (PP)...Ch. 4 - DCF and free cash flow Construct a new version of...Ch. 4 - Valuing a business Mexican Motors market cap is...Ch. 4 - Valuing Tree cash flow Phoenix Corp. faltered in...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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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Which reason(s) below would be a good justification to use a multistage dividend discount model? (Select all that apply) The company does not pay a dividend The company is rapidly growing The company has a growth rate that is expected to remain stable over the known future The company has a growth rate that is slowing down incrementallyarrow_forwardMay I ask for a solution and explanation to the problem for a better understanding. Thank you! For Lettuce Company what is the dividend pay-out ratio for years 1 and 2, respectively? a. 0.80 ; 0.71 b. 0.71 ; 0.80 c. 0.90 ; 0.85 d. 0.85 ; 0.90arrow_forwardHow a Company's dividend yield "expectations" change, if at all, if the company's ROI was 5% higher?arrow_forward
- The constant growth model: i. Assumes that dividend income will increase at a consistent rate forever. ii. Can be used to value the worth of a share. iii. States that the market price of a share is only affected by the amount of the dividend. iv. Considers capital gains but ignores the dividend yield. Select one: a. i and ii only b. iii and iv only c. ii. only d. i. onlyarrow_forwardWe are to choose the dividend payment policy in the company in such a way as to maintain the current market value (price) of the company. There are two dividend payment models to choose from: fixed dividend and the Gordon model. Please indicate how much (in percentage points) should the nearest fixed dividend be higher than the nearest dividend paid according to the Gordon model, if we assume that the increase in profits of the company (to be distributed among shareholders) will be at the level of 1.5% each year and we assume that the discount rate in this market will be 7%. Calculate the fixed dividend if the nearest dividend according to the Gordon model is 10 PLN. В Iarrow_forwardExplain why it would be difficult to use the dividend discount model (DDM) to value a new and growing company.arrow_forward
- What is the reason for using a two-stage dividend growth modelarrow_forwardUsing the constant dividend growth model, determine the price change in a share when the required rate of return decreases from 15 to 13 per cent combined with an increase in the dividend growth rate from 5 to 6 per cent. Select one: a. fall more than 50% b. rise less than 50% C. fall less than 50% d. rise more than 50%arrow_forwardThe dividend-growth model, V = Do(1+g) k-9 suggests that an increase in the dividend growth rate will increase the value of a stock. However, an increase in the growth may require an increase in retained earnings and a reduction in the current dividend. Thus, management may be faced with a dilemma: current dividends versus future growth. As of now, investors' required return is 11 percent. The current dividend is $1 a share and is expected to grow annually by 6 percent, so the current market price of the stock is $21.2. Management may make an investment that will increase the firm's growth rate to 8 percent, but the investment will require an increase in retained earnings, so the firm's dividend must be cut to $0.5 a share. Should management make the investment and reduce the dividend? Round your answer to the nearest cent. The value of the stock -Select- to $ , so the management -Select- make the investment and decrease the dividend.arrow_forward
- Using the constant dividend growth model, determine the percentage price change in a share when the required rate of return decreases from 19 to 17 per cent combined with a decrease in the dividend growth rate from 11 to 9 per cent. Select one: A. fall less than 2% B. rise more than 2%. C. rise less than 3% D. fall more than 2%arrow_forwardAccording to the dividend growth model, if a company was expected never to pay dividends, its value would be Select one: a. based on expectations regarding the discount rate. b. zero. C. higher than similar firms since it could reinvest a greater amount in new projects. d. based on earnings.arrow_forwardWhat is the significance of knowing growth rate per share using the Constant Growth Model?arrow_forward
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY