3. Calculating Cost of Equity [LO1] Stock in Daenerys Industries has a beta of 1.05. The market risk premium is 7 percent, and T-bills are currently yielding 3.4 percent. The company's most recent dividend was $2.35 per share, and dividends are expected to grow at an annual rate of 4.1 percent indefinitely. If the stock sells for $43 per share, what is your best estimate of the company's cost of equity?

3. Calculating Cost of Equity [LO1] Stock in Daenerys Industries has a beta of 1.05. The market risk premium is 7 percent, and T-bills are currently yielding 3.4 percent. The company's most recent dividend was $2.35 per share, and dividends are expected to grow at an annual rate of 4.1 percent indefinitely. If the stock sells for $43 per share, what is your best estimate of the company's cost of equity?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Mining has seen its business slowly wind down. It recently paid a dividend of $1.80 per share (D0), but analysts expect the dividend to decrease by 6% per year. The risk-free rate is 4.0% and the market risk premium is 5.0%. If the company beta is 0.8 and the market is in equilibrium, what is the value of its stock? $13.97 $11.79 $16.04 $12.09 $10.90
Farelli Corporation (NFC) last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. NFC's beta coefficient 1.334, return on market portfolio is 10 percent, and return on risk-free asset is 4 percent. What is the current stock price of NFC?
2. Suppose that the consensus forecast of security analysts of NoWork Inc. is that earnings next year will be E1 = $10.00 per share. The company tends to plow back 50% of its earnings and pay the rest as dividends. The CFO estimates that the company’s growth rate will be 8% from now on. (a) Suppose there is uncertainty about the stock’s dividend growth rate. With a probability1/3 the growth rate will be 10%, with a probability 2/3 it will be 7%. What are the respective market values under the two different growth rates? (b) What is the fair price of the stock given the probabilities above? (c) What is the expected growth rate for the stock? Given your calculations, which security is more valuable for an investor: the stock with an 8% growth rate for sure or the stock described in part (a) with an uncertain growth rate?
1. Problem 9.02 (Constant Growth Valuation) Tresnan Brothers is expected to pay a \$3.30 per share dividend at the end of the year(1.e.D1=53.20). The dividend is expected to grow at a constant rate of 94 a year. The required rate of tetura on the stock,fmis16%. What is the stock's current value per share? Round vour answer to the nearest cent.
● Suppose a firm is expected to increase dividends by 20% in one year and by 15% in two years. After that dividends will increase at a rate of 5% per year indefinitely. If the last dividend was $1 and ● the required return is 20%, what is the price of the stock? Remember that we have to find the PV of all expected future dividends. 7-22
Stock in Daenerys Industries has a beta of 1.02. The market risk premium is 8 percent, and T-bills are currently yielding 5.5 percent. The company's most recent dividend was $2 per share, and dividends are expected to grow at a 6 percent annual rate indefinitely. If the stock sells for $32 per share, what is your best estimate of the company's cost of equity? Multiple Choice 8.05% 13.66% 13.14% 10.54% O 12.63%
None
19. Stock in Jansen Industries has a beta of 1.2. The market risk premium is 5 percent, and T-bills are currently yielding 4.9 percent. The company’s most recent dividend was $1.90 per share, and dividends are expected to grow at an annual rate of 5 percent indefinitely. If the stock sells for $50 per share, what is your best estimate of the company’s cost of equity?
Meow.net recently paid a dividend of $2.05 per share, but analysts expect the dividend to increase by 8% per year. The risk- free rate is 1.5% and the market risk premium is 7%. If Meow's beta is 2.15 and the market is in equilibrium what is the value of the stock? O $25.89 O $7.68 O $13.38 O $23.98
16
1.A stock is expected to pay a dividend of $2.75 at the end of the year (i.e., D1 = $2.75), and it should continue to grow at a constant rate of 10% a year. If its required return is 14%, what is the stock's expected price 4 years from today? Do not round intermediate calculations. Round your answer to the nearest cent. = $ 2. Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Computech to begin paying dividends, beginning with a dividend of $1.00 coming 3 years from today. The dividend should grow rapidly—at a rate of 29% per year—during Years 4 and 5, but after Year 5, growth should be a constant 6% per year. If the required return on Computech is 18%, what is the value of the stock today? Do not round intermediate calculations. Round your answer to the nearest cent. = $
Subject: Financial strategy & policy Question No 3 (part i) Answer the following. i) The future earnings, dividends, and common stock price of Nabeel Inc. are expected to grow 7% per year. Common stock currently sells for $23.00 per share; its last dividend was $2.00. a) Using the DCF approach, what is its cost of common equity? b) If the firm’s beta is 1.6, the risk-free rate is 9%, and the average return on the market is 13%, what will be the firm’s cost of common equity using the CAPM approach? c) If the firm’s bonds earn a return of 12%, based on the bond-yield-plus-risk-premium approach, what will be rs? d) If you have equal confidence in the inputs used for the three approaches, what is your estimate of cost of common equity?

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