Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN: 9781337902571
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Chapter 9, Problem 5TCL
Summary Introduction
To calculate: The amount of next year dividend per share.
Introduction:
Dividends:
It refers to the return over shares that is provided to the shareholders as a part of their earnings on the shares that they have invested in a company. It is that part of the total earnings that the company distributes among its shareholders.
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Suppose that Do = $1.00 and the stock's last closing price is $15.85. It is expected that earnings and dividends will grow at a constant rate of
g = 3.50% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium,
and the most appropriate required rate of return is rs = 10.00%.
The dividend received in period 1 is D1 = $1.00 × (1+0.0350) = $1.04 and the estimated intrinsic value in the same period is based on the
D2
constant growth model: P₁: TS-8
Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period.
Activity Frame
Dividend
Price
PV
t 10.00%
Period
(Dollars)
(Dollars)
(Dollars)
0
$1.00
$15.85
1
1.03
16.46
$0.94
2
1.07
17.08
$0.97
3
1.11
17.69
$1.01
4
1.15
18.31
$0.97
5
1.19
18.92
$0.94
The dividend yield for period 1 is
and it will
The capital gain yield expected during period 1 is
and it will
each period.
each period.
If it is…
Suppose that Do = $1.00 and the stock's last closing price is $26.25. It is expected that earnings and dividends will grow at a constant rate of
g = 5.00% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium,
and the most appropriate required rate of return is rs = 9.00%.
The dividend received in period 1 is D₁ = $1.00 × (1+0.0500) = $1.05 and the estimated intrinsic value in the same period is based on the
constant growth model: P₁ = P²
Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period.
Price
(Dollars)
$26.25
PV of dividend at 9.00%
(Dollars)
Dividend
Period (Dollars)
0
$1.00
1.05
1
2
3
4
5
The dividend yield for period 1 is
The capital gain yield expected during period 1 is
4.00%
O 5.00%
and it will
9.00%
If it is forecasted that the total return equals 9.00% for the next 5 years, what is the forecasted total return out…
Suppose TRF = 4%, TM = 9%, and b = 1.1.
a. What is n, the required rate of return on Stock i? Round your answer to one decimal place.
%
b. 1. Now suppose rar increases to 5%. The slope of the SML remains constant. How would this affect ry and n?
I. ry will increase by 1 percentage point and n will remain the same.
II. Both ry and r, will decrease by 1 percentage point.
III. Both rm and r, will remain the same..
IV. Both r and r, will increase by 1 percentage point.
V. r will remain the same and r, will increase by 1 percentage point.
-Select- v
2. Now suppose rar decreases to 3%. The slope of the SML remains constant. How would this affect ry and n?
I. TM will decrease by 1 percentage point and n will remain the same.
II. rs will remain the same and n will decrease by 1 percentage point.
III. Both ry and r, will increase by 1 percentage point.
IV. Both ry and r, will remain the same.
V. Both ry and r, will decrease by 1 percentage point.
Select
Chapter 9 Solutions
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Ch. 9.A - For a stock to be in equilibrium, what two...Ch. 9.A - Prob. 2QCh. 9.A - RATES OF RETURN AND EQUILIBRIUM Stock Cs beta...Ch. 9.A - 9A-2 EQUILIBRIUM STOCK PRICE The risk-free rate of...Ch. 9.A - 9A-3 BETA COEFFICIENTS Suppose Chance Chemical...Ch. 9 - It is frequently stated that the one purpose of...Ch. 9 - Is the following equation correct for finding the...Ch. 9 - Prob. 3QCh. 9 - Two investors are evaluating GEs stock for...Ch. 9 - A bond that pays interest forever and has no...
Ch. 9 - Discuss the similarities and differences between...Ch. 9 - Prob. 7QCh. 9 - How do non-operating assets impact a firms...Ch. 9 - DPS CALCULATION Weston Corporation just paid a...Ch. 9 - CONSTANT GROWTH VALUATION Tresnan Brothers is...Ch. 9 - CONSTANT GROWTH VALUATION Holtzman Clothierss...Ch. 9 - NONCONSTANT GROWTH VALUATION Holt Enterprises...Ch. 9 - CORPORATE VALUATION Scampini Technologies is...Ch. 9 - PREFERRED STOCK VALUATION Farley Inc. has...Ch. 9 - Prob. 7PCh. 9 - PREFERRED STOCK VALUATION Earley Corporation...Ch. 9 - PREFERRED STOCK RETURNS Avondale Aeronautics has...Ch. 9 - Prob. 10PCh. 9 - Suppose you believe that the economy is just...Ch. 9 - Prob. 12PCh. 9 - CONSTANT GROWTH You are considering an investment...Ch. 9 - NONCONSTANT GROWTH Computech Corporation is...Ch. 9 - Prob. 15PCh. 9 - NONCONSTANT GROWTH Carnes Cosmetics Co.s stock...Ch. 9 - CONSTANT GROWTH Your broker offers to sell you...Ch. 9 - NONCONSTANT GROWTH STOCK VALUATION Taussig...Ch. 9 - Prob. 19PCh. 9 - CORPORATE VALUE MODEL Assume that today is...Ch. 9 - NONCONSTANT GROWTH Assume that it is now January...Ch. 9 - Comprehensive/Spreadsheet Problem NONCONSTANT...Ch. 9 - Prob. 23ICCh. 9 - Prob. 1TCLCh. 9 - Prob. 2TCLCh. 9 - Prob. 3TCLCh. 9 - Prob. 4TCLCh. 9 - Prob. 5TCLCh. 9 - Prob. 6TCLCh. 9 - Prob. 7TCLCh. 9 - Prob. 8TCLCh. 9 - Prob. 9TCL
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