Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 7, Problem 24P
Conroy Consulting Corporation (CCC) has a current dividend of D0 = $2.5. Shareholders require a 12%
- a. What is CCC’s stock worth today?
- b. What is the expected stock price at Year 1?
- c. What is the Year 1 expected (1) dividend yield, (2)
capital gains yield, and (3) total return? - d. What is its expected dividend yield for the second year? The expected capital gains yield? The expected total return?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Conroy Consulting Corporation (CCC) has a current dividend of D0 = $1.00. Shareholders require a 14% rate of return. Although the dividend has been growing at a rate of 25% per year in recent years, this growth rate is expected to last only for another 2 years (g0,1 = g1,2 = 25%). After Year 2, the growth rate will stabilize at gL = 8%.
/!\ Be mindful of rounding errors! Rounding intermediary calculations may lead to slight errors.
What is CCC's stock worth today?Do not round intermediate calculations. Round your answer to the nearest cent.
Answer
What is the expected stock price at Year 1?Do not round intermediate calculations. Round your answer to the nearest cent.
Answer
What is the Year 1 expected dividend yield? Do not round intermediate calculations. Round your answer to two decimal places.
Answer
What is the Year 1 capital gain yield? Do not round intermediate calculations. Round your answer to two decimal places.
Answer
What is the Year 1…
Conroy Consulting Corporation (CCC) has a current dividend of D0 = $2.70. Shareholders require a 10% rate of return. Although the dividend has been growing at a rate of 29% per year in recent years, this growth rate is expected to last only for another 2 years (g0,1 = g1,2 = 29%). After Year 2, the growth rate will stabilize at gL = 4%. What is CCC's stock worth today? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is the expected stock price at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is the Year 1 expected (1) dividend yield, (2) capital gains yield, and (3) total return? Do not round intermediate calculations. Round your answers to two decimal places. Dividend yield: % Capital gains yield: % Total return: % What is its expected dividend yield for the second year? The expected capital gains yield? The expected total return? Do not round intermediate calculations. Round your answers to two…
Suppose a firm is expected to increase dividends by 20% in one year and decrease by 12% in two years and then increase by 15% in three years. After that dividends will increase at a rate of 5% per year indefinitely.
The last dividend was $1.55 and the required return is 13%.
a) Compute the dividends until growth levels off.
Ans:
D1 = ?
D2 = ?
D3 = ?
D4 = ?
b) Find the expected future price at the beginning of the constant growth period:
Ans: P3 = ?
c) Find the present value of the expected future cash flows
Ans: P0 = ?
Chapter 7 Solutions
Financial Management: Theory & Practice
Ch. 7 - Two investors are evaluating General Electric’s...Ch. 7 - A bond that pays interest forever and has no...Ch. 7 - Explain how to use the free cash flow valuation...Ch. 7 - Ogier Incorporated currently has $800 million in...Ch. 7 - EMC Corporations current free cash flow is 400,000...Ch. 7 - Prob. 3PCh. 7 - JenBritt Incorporated had a free cash flow (FCF)...Ch. 7 - Blunderbluss Manufacturing’s balance sheets report...Ch. 7 - Thress Industries just paid a dividend of $1.50 a...Ch. 7 - Boehm Incorporated is expected to pay a 1.50 per...
Ch. 7 - Woidtke Manufacturing’s stock currently sells for...Ch. 7 - A company currently pays a dividend of $2 per...Ch. 7 - Nick’s Enchiladas has preferred stock outstanding...Ch. 7 - Brook Corporation’s free cash flow for the current...Ch. 7 - Kendra Enterprises has never paid a dividend. Free...Ch. 7 - Dozier Corporation is a fast-growing supplier of...Ch. 7 - Brushy Mountain Mining Companys coal reserves are...Ch. 7 - Prob. 15PCh. 7 - Crisp Cookware’s common stock is expected to pay a...Ch. 7 - Prob. 17PCh. 7 - Assume that the average firm in C&J Corporation’s...Ch. 7 - Simpkins Corporation does not pay any dividends...Ch. 7 - Several years ago, Rolen Riders issued preferred...Ch. 7 - You buy a share of The Ludwig Corporation stock...Ch. 7 - You are analyzing Jillians Jewelry (JJ) stock for...Ch. 7 - Reizenstein Technologies (RT) has just developed a...Ch. 7 - Conroy Consulting Corporation (CCC) has a current...Ch. 7 - Start with the partial model in the file Ch07 P25...Ch. 7 - Prob. 26SPCh. 7 - Start with the partial model in the file Ch07 P27...Ch. 7 - Describe briefly the legal rights and privileges...Ch. 7 - Prob. 2MCCh. 7 - Use a pie chart to illustrate the sources that...Ch. 7 - Suppose the free cash flow at Time 1 is expected...Ch. 7 - Use BMs data and the free cash flow valuation...Ch. 7 - You have just learned that B&M has undertaken a...Ch. 7 - Prob. 7MCCh. 7 - Prob. 8MCCh. 7 - Prob. 9MCCh. 7 - What is the horizon value at Year 4? What is the...Ch. 7 - Prob. 11MCCh. 7 - Prob. 14MCCh. 7 - Prob. 15MCCh. 7 - Assume that Temp Force is a constant growth...Ch. 7 - Prob. 17MCCh. 7 - Prob. 18MCCh. 7 - Prob. 19MCCh. 7 - Prob. 20MCCh. 7 - Prob. 21MC
Knowledge Booster
Learn more about
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
- 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 receivearrow_forwardPlease show complete steps thanks and correctly.arrow_forwardMobray Corp. is experiencing rapid growth. Dividends are expected to grow at 25 percent per year during the next three years, 15 percent over the following year, and then 7 percent per year indefinitely. The required return on this stock is 12 percent, and the stock currently sells for $88 per share. What is the projected dividend for the coming year? (i.e. Div 1) in step 3 how did u get the 30.546 =Do (1.11607+1.24562+1.39020+1.42743+ 30.546) = 88=Do (35.72525) = 88=Do =88/ 35.72525=Do =2.46arrow_forward
- Taussig Technologies Corporation (TTC) has been growing at a rate of 20% per year in recent years. This same growth rate is expected to last for another 2 years. a. If D₂ = $1.60, r = 10%, and g. - 6%, what is TIC's stock worth today? What are its expected dividend yield and capital gains yield at this time? 1. Find the price today. D₁ T. BL Year Dividend PV of dividends $1.7455+ 1.9041 $50.4595 $54.1091 - P. Dividend yield= Dividend yield- Dividend yield- $1.60 10.0% 20% $1.60 P₁ P₁ Cap. Gain yield-Expected return Cap. Gain yield Cap. Gain yield- P₁ D₁ $1.920 3.55% Cap. Gain yield Cap. Gain yield Cap. Gain yield 2. Find the expected dividend yield. Recall that the expected dividend yield is equal to the next expected annual dividend divided by the price at the beginning of the period. 20% 10.0% 6.45% - Short-run g; for Years 1-2 only. Long-run g; for Year 3 and all following years. - $1.92 3. Find the expected capital gains yield. The capital gains yield can be calculated by simply…arrow_forwardConroy Consulting Corporation (CCC).has been growing at a rate of 30% per year in recent years. This same nonconstant growth rate is expected to last for another 2 years (g0,1 = g1,2 = 30%). a. If Do = $2.50, r, = 12%, and g1, = 7%, then what is CCC's stock worth today? What are its expected dividend yield and capital gains yield at this time? b. Now assume that CCC's period of nonconstant growth is to last another 5 years rather than 2 years (go,1 this affect its price, dividend yield, and capital gains yield? Answer in words only. c. What will CCC's dividend yield and capital gains yield be once its period of nonconstant growth ends? (Hint: These values will be the same regardicss of whether you examine the case of 2 or 5 years of nonconstant growth, and the calculations are very easy.) d. Of what interest to investors is the relationship over time between dividend yield and capital gains yield? %3D g1,2 = 82,3 = g3,4 = 84,5 = 30%). How wouldarrow_forward4)Your company paid a dividend of $2.00 last year. The growth rate is expected to be 4 percent for 1 year, 5 percent the next year, then 6 percent for the following year, and then the growth rate is expected to be a constant 7 percent thereafter. The required rate of return on equity (ks) is 10 percent. What is the current stock price? DO NOT USE MS EXCEL FOR SOLUTIONarrow_forward
- Suppose the Pale Hose Corp. is expected to pay a dividend next year of OMR2.25 per share. Both sales and profits for Pale Hose are expected to grow at a rate of 20% for the following 2 years and then at 5% per year thereafter indefinitely. Dividend growth is expected to match sales growth. If the required return is 15%, what is the value of a share of Pale Hose?arrow_forwardComputech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Computech to begin paying dividends, beginning with a dividend of $1.75 coming 3 years from today. The dividend should grow rapidly—at a rate of 28% per year—during Years 4 and 5, but after Year 5, growth should be a constant 4% per year. If the required return on Computech is 18%, what is the value of the stock today? Do not round intermediate calculations. Round your answer to the nearest cent.arrow_forwardA company expects earnings in the current year to be $5 per share, and plans to pay a $3 dividend to shareholders. The company will retain $2 per share of its earnings to reinvest in new projects with an expected return of 15% per year. Suppose the company will maintain the same dividend payout rate, retention rate, and return on new investments in the future and will not change its number of outstanding shares. a. What growth rate of earnings would you forecast for the company? b. If the equity cost of capital is 12%, what price would you estimate for the company’s stock? c. Suppose instead paying a dividend of $4 per share this year and retained only $1 per share in earnings. If the company maintains this higher payout rate in the future, what stock price would you estimate now? Should the company raise its dividend?arrow_forward
- A company has been growing at a fast rate of 35% per year recently and this growth rate is expected to last for another two years. Thereafter, the growth rate is expected to decline to a sustainable rate of 5% 1. If the most recent dividend paid is RM1.20 and required rate of return is 12%, how much is the stock worth today? 2. Based on the calculation in (a), would you buy the share if the stock is selling at RM25 today? Is the share overvalued or undervalued? Please help me ASAP. Thanks!arrow_forwardTrend-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?arrow_forwardTerrell Enterprises recently paid a dividend, D0 of $1.50. It expects to have nonconstant growth of 25% for 2 years followed by a constant rate of 6% thereafter. The firms required return is 12%. What is the firms intrinsic value today?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY