EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 7, Problem 3P
Summary Introduction
To determine: The implied growth rate.
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The FI Corporation's dividends per share are expected to grow indefinitely by 6% per year.
a. If this year's year-end dividend is $8.00 and the market capitalization rate is 10% per year, what must the current stock price be
according to the DDM?
Current stock price
b. If the expected earnings per share are $16.00, what is the implied value of the ROE on future investment opportunities? (Round your
answer to 2 decimal places.)
Value of ROE
c. How much is the market paying per share for growth opportunities (i.e., for an ROE on future investments that exceeds the market
capitalization rate)? (Round your answer to 2 decimal places.)
Amount
%
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Forever 21 is expected to pay an annual dividend of $3.46 per share in one year, which is then expected to grow by 9% per year indefinitely. Suppose the company's stock should earn an appropriate yearly return of 14% determined by Capital Asset Pricing Model (CAPM). Using Dividend Discount Model to find the appropriate stock price.
The FI Corporation’s dividends per share are expected to grow indefinitely by 8% per year.
Required:
If this year’s year-end dividend is $3.00 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM?
Note: Round your answer to 2 decimal places.
If the expected earnings per share are $9.00, what is the implied value of the ROE on future investment opportunities?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
How much is the market paying per share for growth opportunities (i.e., for an ROE on future investments that exceeds the market capitalization rate)?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Chapter 7 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 7 - Prob. 1QTDCh. 7 - Prob. 2QTDCh. 7 - Prob. 3QTDCh. 7 - Prob. 4QTDCh. 7 - Prob. 5QTDCh. 7 - Prob. 6QTDCh. 7 - Prob. 7QTDCh. 7 - Prob. 8QTDCh. 7 - Prob. 9QTDCh. 7 - Prob. 10QTD
Ch. 7 - Prob. 11QTDCh. 7 - Prob. 12QTDCh. 7 - Prob. 13QTDCh. 7 - Prob. 14QTDCh. 7 - Prob. 15QTDCh. 7 - Prob. 16QTDCh. 7 - Prob. 17QTDCh. 7 - Prob. 18QTDCh. 7 - Prob. 1PCh. 7 - Prob. 2PCh. 7 - Prob. 3PCh. 7 - Prob. 4PCh. 7 - Prob. 5PCh. 7 - Prob. 6PCh. 7 - Prob. 7PCh. 7 - Prob. 8PCh. 7 - Prob. 9PCh. 7 - Prob. 10PCh. 7 - Prob. 11PCh. 7 - Prob. 12PCh. 7 - Prob. 13PCh. 7 - Prob. 14PCh. 7 - Prob. 15PCh. 7 - Prob. 16PCh. 7 - Prob. 17PCh. 7 - Prob. 18PCh. 7 - Prob. 19PCh. 7 - Prob. 20PCh. 7 - Prob. 21PCh. 7 - Prob. 22PCh. 7 - Prob. 23PCh. 7 - Prob. 24PCh. 7 - Prob. 25PCh. 7 - Prob. 26PCh. 7 - Prob. 27PCh. 7 - Prob. 28PCh. 7 - Prob. 29P
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