4) Skyline Inc. is expecting to pay $1.23, $0.99, and $1.13 in annual dividends for the next three years respectively. After that, it projects that dividends will increase by 1.5% annually. Andy is in the 25% marginal tax bracket and wants to earn 6% after-tax on his investments. How much is Andy willing to pay today for one share of Skyline Inc. stock?

4) Skyline Inc. is expecting to pay $1.23, $0.99, and $1.13 in annual dividends for the next three years respectively. After that, it projects that dividends will increase by 1.5% annually. Andy is in the 25% marginal tax bracket and wants to earn 6% after-tax on his investments. How much is Andy willing to pay today for one share of Skyline Inc. stock?

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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Similar questions

You purchased a stock at the end of last year at a price of $98. At the end of this year, the stock pays a dividend of $2.10 and you sell the stock for $107. What is your return for the year? Now suppose that dividends are taxed at 15 percent and long-term capital gains (over 11 months) are taxed at 30 percent. What is your aftertax return for the year? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Pretax return 11.33 % Aftertax return %
Zion Inc. will pay a $4.25 per share dividend in year 5. The company pledges to increase its dividend by 5% (g) per year indefinitely. If you require a 10% return (r) on your investment, how much will you pay for the company’s stock today (Po)?
Poulter Corporation will pay a dividend of $4.75 per share next year. The company pledges to increase its dividend by 7.5 percent per year, indefinitely. If you require a return of 9 percent on your investment, how much will you pay for the company’s stock today?
You require an 11 percent return on your investment. Big business Corp. will pay a $3.60 per share dividend next year. The company pledges to increase its dividend by 4.5 percent per year indefinitely. How much will you pay for the company’s stock today? Suppose the company also has a preferred stock which sells for $113 per share and pays a $6.50 dividend every year in perpetuity. What is its required return?
Michael’s, Inc. just paid $1.80 to their shareholders as the annual dividend. Simultaneously, the company announced that future dividends would be increasing by 5.0 percent forever. If you require an 4 percent rate of return, how much are you willing to pay to purchase one share of Michael’s stock?
(Short answer will be fine)Fred expects to earn a total of 15 percent on his investments. He recently purchased shares of CC Corporation at a price of $20 a share. The company will pay a dividend of $1 next year. a)Based on constant dividend growth model, how many percent of the price of CC stock needs to change if Fred is to achieve his 15 percent rate of return? b)Fred owns 1000 shares in CC Corporation. At the company’s annual general meeting, five director seats are available for election. Fred can cast 4000 votes to one candidate and 1000 to the other. What is the type of voting system?
Mr. Peloskiis looking at investing in shares of XYZ Corporation. Yesterday XYZ paideout an annual dividend of $8 per share. The XYZ Corporation is expected to grow in production and profits (and in dividends) at a rate of 5% per year. How much should Mr. Peloskipay for one share of XYZ Corporation if his desired rate of return is 7% per year?
You are considering acquiring a common share of Sahali Shopping Center Corporation that you would like to hold for 1 year. You expect to receive both $1.15 in dividends and $25 from the sale of the share at the end of the year. The maximum price you would pay for a share today is if you wanted to earn a 11% return.
At this point, you may be confused why calling part of your in- vestment debt or equity makes a difference. Let’s walk through an example and compute your post-tax returns. Suppose $2 million of your investment is structured as debt and the remaining $8 million is equity. What happens each year after the company is set up? Well, using the $4 million EBIT, the company will first pay $2 million 50% = $1 million interest to you (as a debt investor). Then, on the remaining $4 $1 = $3 million of EBIT, the company pays corporate taxes of $3 20% = $0.6 million and is left with $2.4 million, which will be paid out to you (the equity holder) as dividend. Income Statement EBIT 4 -Interest expense 1 -Corporate taxes .6 = Net income of 2.4 million Therefore, the total returns to you (as an investor) is $1 million in interest and $2.4 million in dividends, which is a total of $3.4 million.4 Uncle Sam collected $0.6 million. The company will go bankrupt if its EBIT is strictly less than interest…
Caan Corporation will pay a $2.66 per share dividend next year. The company pledges to increase its dividend by 5 percent per year indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company's stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)
Stan and Alicia can invest $40000 in preffered stock A which pay a dividend of $2000 a year, payable quarterly. They will re-invest the dividends in a savings account which presently earnes 3% compounded yearly. They expect the stock will reach a selling price of $44000 in 4 years. Assume a regular income marginal tax rate of 43%, and a dividend marginal tax rate of 17.4 5%, and a capital gains marginal tax rate of 21.5%. What is the after-tax EAR of this tock? Assume taxation is paid annually for the interests and dividends.
White Wedding Corporation will pay a $3.35 per share dividend next year. The company pledges to increase its dividend by 4.34 percent per year, indefinitely. If you require a 10 percent return on your investment, how much will you pay for the company's stock today? Value of a stock

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