Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 9, Problem 31QAP
Nonconstant Growth Storico Co. just paid a dividend of
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Supernormal Growth Synovec Corp. is growing quickly. Dividends are expected to
grow at a rate of 25 percent for the next three years, with the growth rate falling off to
a constant 4.5 percent, thereafter. If the required return is 10.5 percent and the
company just paid a dividend of $3.15, what is the current share price?
Hamilton Landscaping's dividend growth rate is expected to be 25% in the next year, drop
to 12% from Year 1 to Year 2, and drop to a constant 3% after Year 2 and all subsequent
years. Hamilton has just paid a dividend of $2.95 and its stock has a required return of
11.5%.
a.
What is Hamilton's estimated stock price today?
Do
$2.95
11.5%
90,1
25%
Short-run g; for Year 1 only.
91,2
12%
Short-run g; for Year 2 only.
GL
3%
Long-run g; for Year 3 and all following years.
g
25%
12%
3%
+
Year
Dividend
0
1
3
PV of dividends and
PV of horizon value
=
Po
= D3
= Horizon value
=
P₂-
a. 2 What is Hamilton's estimated stock price for Year 1?
P1
P₁
P1
P2
+
D2
(1+rs)
Nonconstant Growth
Tattletale News Corp. has been growing at a rate of 20% per year, and you expect this growth rate in both earnings and dividends to continue for another 3 years.
If the last dividend paid was $2, what will the next dividend be ? Explain your answer.
If the discount rate is 15% and the steady growth rate after 3 years is 4%, what should the stock price be today? Explain your answer.
Chapter 9 Solutions
Corporate Finance
Ch. 9 - Stock Valuation Why does the value of a share of...Ch. 9 - Stock Valuation A substantial percentage of the...Ch. 9 - Dividend Policy Referring to the previous...Ch. 9 - Prob. 4CQCh. 9 - Common versus Preferred Stock Suppose a company...Ch. 9 - Dividend Growth Model Based on the dividend growth...Ch. 9 - Growth Rate In the context of the dividend growth...Ch. 9 - Price-Earnings Ratio What are the three factors...Ch. 9 - Prob. 9CQCh. 9 - Prob. 10CQ
Ch. 9 - Prob. 1QAPCh. 9 - Stock Values The next dividend payment by Skippy,...Ch. 9 - Prob. 3QAPCh. 9 - Stock Values Saine Corporation will pay a 3.25 per...Ch. 9 - Stock Valuation Change, Inc., is expected to...Ch. 9 - Stock Valuation Suppose you know that a companys...Ch. 9 - Prob. 7QAPCh. 9 - Prob. 8QAPCh. 9 - Growth Rate The newspaper reported last week that...Ch. 9 - Prob. 10QAPCh. 9 - Prob. 11QAPCh. 9 - Prob. 12QAPCh. 9 - Prob. 13QAPCh. 9 - Prob. 14QAPCh. 9 - Prob. 15QAPCh. 9 - Prob. 16QAPCh. 9 - Prob. 17QAPCh. 9 - Prob. 18QAPCh. 9 - Valuing Preferred Stock Fifth National Bank just...Ch. 9 - Prob. 20QAPCh. 9 - Nonconstant Growth and Quarterly Dividends...Ch. 9 - Finding the Dividend Newkirk, Inc., is expected to...Ch. 9 - Prob. 23QAPCh. 9 - Prob. 24QAPCh. 9 - Price-Earnings Ratio Consider Pacific Energy...Ch. 9 - Prob. 26QAPCh. 9 - Stock Valuation and EV FFDP Corp. has yearly sales...Ch. 9 - Stock Valuation and Cash Flows Full Boat...Ch. 9 - Prob. 29QAPCh. 9 - Prob. 30QAPCh. 9 - Nonconstant Growth Storico Co. just paid a...Ch. 9 - Prob. 32QAPCh. 9 - Prob. 1MCCh. 9 - Prob. 2MCCh. 9 - Prob. 3MCCh. 9 - Prob. 4MCCh. 9 - Prob. 5MCCh. 9 - Prob. 6MC
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