Intermediate Financial Management
14th Edition
ISBN: 9780357516782
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 8, Problem 16P
Constant Growth Valuation
Crisp Cookware’s common stock is expected to pay a dividend of $3 a share at the end of this year (D1 = $3.00); its beta is 0.8. The risk-free rate is 5.2%, and the market risk premium is 6%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $40 a share. Assuming the market is in equilibrium, what does the market believe will be the stock’s price at the end of 3 years (i.e., what is
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $22.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?
Question 2 options:
5.88%
4.25%
4.30%
4.90%
4.94%
grey manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1=$1.25). The stock sells fo $27.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?
Crisp Cookware's common stock is expected to pay a dividend of $2.5 a share at the end of this year (D1 = $2.50); its beta is 0.6. The risk-free rate is 2.8% and the market risk premium is 6%. The dividend is expected to grow at some constant rate, gL, and the stock currently sells for $50 a share. Assuming the market is in equilibrium, what does the market believe will be the stock's price at the end of 3 years (i.e., what is )? Do not round intermediate calculations. Round your answer to the nearest cent.
Chapter 8 Solutions
Intermediate Financial Management
Ch. 8 - Define each of the following terms: a. Proxy;...Ch. 8 - Two investors are evaluating General Electric’s...Ch. 8 - A bond that pays interest forever and has no...Ch. 8 - Explain how to use the free cash flow valuation...Ch. 8 - Thress Industries just paid a dividend of 1.50 a...Ch. 8 - Prob. 7PCh. 8 - Prob. 8PCh. 8 - A company currently pays a dividend of $2 per...Ch. 8 - Prob. 10PCh. 8 - Value of Operations
Kendra Enterprises has never...
Ch. 8 - Free Cash Flow Valuation
Dozier Corporation is a...Ch. 8 - Brushy Mountain Mining Companys coal reserves are...Ch. 8 - Constant Growth Valuation Crisp Cookwares common...Ch. 8 - Prob. 17PCh. 8 - Prob. 18PCh. 8 - Nonconstant Growth Stock Valuation Simpkins...Ch. 8 - Prob. 20PCh. 8 - Prob. 1MCCh. 8 - Prob. 2MCCh. 8 - Prob. 3MCCh. 8 - Prob. 4MCCh. 8 - Use B&M’s data and the free cash flow valuation...Ch. 8 - Prob. 6MCCh. 8 - Prob. 7MCCh. 8 - Prob. 8MCCh. 8 - Prob. 9MCCh. 8 - Prob. 10MCCh. 8 - Prob. 11MCCh. 8 - Prob. 13MCCh. 8 - (1) Write out a formula that can be used to value...Ch. 8 - Assume that Temp Force has a beta coefficient of...Ch. 8 - Prob. 16MCCh. 8 - Now assume that the stock is currently selling at...Ch. 8 - Prob. 19MCCh. 8 - Prob. 20MCCh. 8 - 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
- Calculation of gL and EPS Spencer Suppliess stock is currently selling for 60 a share. The firm is expected to earn 5.40 per share this year and to pay a year-end dividend of 3.60. a. If investors require a 9% return, what rate of growth must be expected for Spencer? b. If Spencer reinvests earnings in projects with average returns equal to the stocks expected rate of return, then what will be next years EPS? [Hint: gL = ROE Retention ratio.)arrow_forwardA stock is trading at $80 per share. The stock is expected to have a yearend dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate, g, throughout time. The stock’s required rate of return is 14% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of gL?arrow_forwardMarket Equilibrium and Common Stock Growth The required return on the market is 11.5% and the risk free rate is 5.5% APPR Inc. has a beta of 9 and is expected to pay a dividend of $3.00 per share at the end of the current year. Its current stock price is $50 per share. Assume the market is in equilibrium so the required rate of return equals the expected rate of return. Calculate the following Required rate of return of APPR Inc. stock Expected growth rate Dividend yield and capital gain yield b. Farrow_forward
- Crisp Cookware’s common stock is expected to pay a dividend of $3 a share at the end of this year (D1 = $3.00); its beta is 0.8. The risk-free rate is 5.2%, and the market risk premium is 6%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $40 a share. Assuming the market is in equilibrium, what does the market believe will be the stock’s price at the end of 3 years (i.e., what is P3)?arrow_forwardConstant growth you are considering an investment in Keller Corps stock , which is expected to pay a dividend of$2.00 a share at the end of the year D1=$2.00 and has a bets of 0.9. The risk-free rate is 5.6% and the market risk premium is 6%. keller currently sells for $25.00 a share, and its dividend is expected to grow at some constant rate g. Assuming the market equllibrim what does the market believe will be the stock price at the end of 3 years? what is P3?arrow_forwardGray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $27.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate? a. 5.95% b. 5.54% O c. 6.01% O d. 6.91% O e. 6.07%arrow_forward
- Franklin Corporation is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate? a. 6.01% b. 6.17% c. 6.33% d. 6.49% e. 6.65%arrow_forwardA corpus expected to pay a dividend of $1.25 per share at the end of the year (D1=$1.25). the stock sells for 27.50 per share and it's required return is 9.75 the dividend is expected to grow at some constant rate forever. what is the equilibrium expected growth rate?arrow_forwardDyer Furniture is expected to pay a dividend of D1 = $1.25 per share at the end of the year and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.15. the market risk premium is 5.50%, and the risk-free rate is 4.00% What is Dyer's current stock price? a. $28.90 b. $29.62 C. $31.12 d. $30.36 e. $31.90arrow_forward
- You are considering an investment in Keller Corp's stock, which is expected to pay a dividend of $0.90 a share at the end of the year and has a beta of 0.40. The risk-free rate is 2.40%, and the market risk premium is 4.40%. Keller currently sells for $103.00 a share, and its dividend is expected to grow at some constant rate g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 5 years? $115.55 $121.07 $125.05arrow_forwardSuppose Dragons, Inc. is expected to pay an annual dividend of $0.85 at t=1. Thereafter the dividend will increase at a growth rate g = 25% for two years, and at a growth rate g = 3% after two years. What should you pay for the stock at t=0 if the appropriate discount rate is 8%? Group of answer choices 24.47 18.98 27.47 34.67arrow_forwardYou are considering an investment in General Electric’s common stock. The stock is expected to pay a dividend of $5 a share at the end of this year; its beta is 0.9; the risk-free rate is 5.6%; and the market risk premium is 6%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $25 a share. Assuming the market is in equilibrium, what the market believes will be the stock’s price at the end of 3 years &5 Years?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
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY