22. Dr. Lee plans to add Sony, Inc. stock to his investment portfolio. The stock just paid a dividend of $1.50. He expects that the dividend will grow at 20% for the next two years and 4% forever after that. Assuming a discount rate of 11%, Dr. Lee knows that Sony, Inc stock is worth $______. a. 22.83 b. 25.71 c. 29.42 d. 33.16 e. 37.50
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
expects that the dividend will grow at 20% for the next two years and 4% forever after that. Assuming a
discount rate of 11%, Dr. Lee knows that Sony, Inc stock is worth $______.
a. 22.83
b. 25.71
c. 29.42
d. 33.16
e. 37.50
23. Caspian Sea Drinks just paid a dividend of $4.25. The dividend is expected to grow at a constant rate of 3.47%
forever and the required
a. $50.49
b. $33.93
c. $41.06
d. $30.12
e. $46.88
24. Rosas, Inc will not pay a dividend for two years. Three years from today, the company will pay out a dividend
of $3.30 (i.e., D3 = 3.30). After that, the dividend will grow at 4% per year forever. If the required rate of
return on Rosas’ stock is 14%, the stock’s current price (i.e., P0) is $______.
a. 25.39
b. 28.21
c. 31.74
d. 34.83
e. 38.96
25. Bugatti, Inc is expected to pay a dividend of $2.40 next year and its current stock price is $48. The discount
rate for the company is 13%. If the market expects Bugatti’s dividends to grow at a constant rate forever, then
the growth rate must be _____%
a. 5
b. 6
c. 7
d. 8
e. 9
Step by step
Solved in 3 steps with 4 images
