4. The dividends that Firm A pays to its stockholders are expected to grow at 18% ayear for the next nine years. From t=9 onwards, the growth rate in dividends will drop to13.5% per year, and the firm expects to be able to sustain it at this level. Assuming thatthe market capitalization rate is 18% a year, work out the value of the firm assuming thatthe dividend expected to be paid at t=1 is $4.50.

The Dividend Discount Model (DDM) is a valuation method used to estimate the fair value of a stock…

Answered: 4. The dividends that Firm A pays to…

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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Laurel Enterprises expects earnings next year of $4.00 per share and has a 40% retention rate, which it plans to keep constant. Its equity cost of capital is 10%, which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of 4.0% per year. If its next dividend is due in one year, what do you estimate the firm's current stock price to be? The current stock price will be $________ (Round to the nearest cent.)
As an analyst, you have gathered the following information on a company you are tracking. The current annual dividend is $1.75. Dividends are expected to grow at a rate of 14% over the next 4 years, and then decline linearly to 5% over the next 7 years, and then remain at a long term equilibrium growth rate of 5% in perpetuity; the required return is 10%. Calculate the value of the company
Consider a firm that just paid a dividend of $5.50 per share. The company expects growth in the coming 2 years to be 17%. After the second year, the firm expects dividends to grow at a constant rate of 3% per year. Assume the required rate of return is 10%
Laurel Enterprises pays annual dividends, and the next dividend is expected to be in one year. Laurel expects earnings next year of $3.58 per share and has a 50% retention rate, which it plans to keep constant. Its equity cost of capital is 11%, which is also its expected return on new investment; this is expected to continue forever. What do you estimate the firm's current stock price to be? (Hint: its next dividend is due in one year.) C The current stock price will be $ (Round to the nearest cent.)
Crane Corp. will pay dividends of $5.00, $6.25, $4.75, and $3.00 in the next four years. Thereafter, management expects the dividend growth rate to be constant at 6 percent. If the required rate of return is 15.50 percent, what is the current value of the stock?
Nikul
Your company has the following expected dividends over the next 6 years: $2.00, $2.40, $3.20, $3.60, $4.20, and $4.41. Note that starting in Year 5, dividends will begin to grow at a constant, long-run sustainable growth rate of 5 percent (D6 = $4.20 x 1.05= $4.41, etc.). Further, the risk-free rate is 4.0 percent, the Risk Premium on the Market is 6.0 percent, and the company has a beta of 1.30. Calculate the current price of this stock at Year 0. O $43.75 $40.27 $52.72 O $47.84 O $37.29
The Company dividend appears to grow smoothly at a constant rate of 5.5%. Analysts forecast that next year’s dividend should equal $3.8. Investors require 14% return on this class of stock. What would be the price in 7 years? Use annual compounding.
Laurel Enterprises expects earnings next year of $4.29 per share and has a 50% retention rate, which it plans to keep constant. Its equity cost of capital is 11%, which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of 5.5% per year. If its next dividend is due in one year, what do you estimate the firm's current stock price to be? The current stock price will be $ (Round to the nearest cent.)
The last dividend paid by a firm was ₱1.25. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs) is 11%, what is its current stock price?
A Company is currently paying a dividend of Rs 10.00 per share and is expected to grow at a rate of 12 percent per year for five years and thereafter at a rate of 6% per year. Calculate the present value of the share if the required rate of return of 10%.
Laurel Enterprises expects earnings next year of $3.99 per share and has a 50% retention rate, which it plans to keep constant. Its equity cost of capital is 11%, which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of 5.5% per year. If its next dividend is due in one year, what do you estimate the firm's current stock price to be?

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