8. Nonconstant growth stockAa AaAs companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, orvariable,growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model.For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation ofthe company's stock.Consider the case of Portman Industries:Portman Industries just paid a dividend of $3.12 per share. The company expects the coming year to be veryprofitable, and its dividend is expected to grow by 20.00% over the next year. After the next year, though,Portman's dividend is expected to grow at a constant rate of 4.00% per year.The risk-free rate (rRF) is 5.00%, the market riskValueTermpremium (RPM) is 6.00%, and Portman's beta is 1.90.Dividends one year from now (D1)Horizon value (P1)Assuming that the market is in equilibrium, use theIntrinsic value of Portman's stockinformation just given to complete the table.What is the expected dividend yield for Portman's stock today?9.92%12.40%11.92%13.88%

Calculate the rate of return as follows:

Answered: 8. Nonconstant growth stock Aa Aa As…

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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8. Nonconstant growth stock As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. Consider the case of Portman Industries: Portman Industries just paid a dividend of $2.40 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 20.00% over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 4.00% per year. Assuming that the market is in equilibrium, use the information just given to complete the table. Term Dividends one year from now (D1) Horizon value (P1) Intrinsic value of Portman's stock The risk-free rate (TRF) is 5.00%, the market risk premium (RPM) is 6.00%, and…
What make ROE(return on equity) of a company decrease further into negatives even though their financial leverage starts to rises? If a company multiplier for financial leverage starts to rise, what does it implies? Why?
1) In most cases, book value reasonably approximates the current market value. This will not be the case in what type of situation(s)? 2) Describe the benefits of a scenario DCF valuation model. What factors should be considered when constructing scenario parameters? 3)Define purchasing power parity. What is the importance of purchasing power parity when you are trying to establish value for a company located in an emerging market? Please provide references.
Economic conditions impact all asset prices. If we can accurately determine where we are at in the business cycle, then we can potentially shift our asset allocation to take advantage of changing conditions. As we enter the early part of an expansion, we would want to underweight ___________ stocks and overweight _____________ stocks. A. cyclical; defensive B. cheap; expensive C. expensive; cheap D. high quality; junk E. defensive; cyclical
If the intrinsic value of a stock is below the current market price, over time we can expect buy orders to exceed sell orders, causing the price to rise buy and sell orders to be evenly matched, keeping the price at its current level sell orders to exceed buy orders, causing the price to rise sell orders to exceed buy orders, causing the price to fall buy orders to exceed sell orders, causing the price to fall
8. Nonconstant growth stock As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. Consider the case of Portman Industries: Portman Industries just paid a dividend of $1.92 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 16.00% over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 3.20% per year. Assuming that the market is in equilibrium, use the information just given to complete the table. Term Dividends one year from now (D₁) Horizon value (P₁) Intrinsic value of Portman's stock The risk-free rate (TRF) is 4.00%, the market risk premium (RPM) is 4.80%, and…
growtri SLOCK As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. Consider the case of Portman Industries: Portman Industries just paid a dividend of $2.64 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 16.00% over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 3.20% per year. Assuming that the market is in equilibrium, use the information just given to complete the table. Term Value Dividends one year from now (D1) Horizon value (P) Intrinsic value of Portman's stock The risk-free rate (TRF) is 4.00%, the market risk premium (RPM) is 4.80%, and Portman's…
Which statement below is incorrect? Select one: A. Compared to interview, survey is more suitable to ask standardised questions. B. If a firm has more intangible assets, according to the trade-off theory, it is more likely to have a higher leverage. C. If a firm is more profitable, according to the pecking order theory, it should use less debt for financing. D. The CAPM model implies that a stock with a higher beta has a higher return on average.
As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company’s stock. Consider the case of Portman Industries: Portman Industries just paid a dividend of $3.12 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 12.00% over the next year. After the next year, though, Portman’s dividend is expected to grow at a constant rate of 2.40% per year. Assuming that the market is in equilibrium, use the information just given to complete the table. Term Value Dividends one year from now (D₁) ($3.66, 4.00, 3.49, 3.57) Horizon value (Pˆ1P̂1) ($148.75, 76.54, 78.29, 51.29) Intrinsic value of Portman’s stock ($76.46, 83.15,…
In which stage of an industry's growth cycle are we most likly to witness high dividend payouts? A- initial development B-stability or decline C- mature growth D- rapid expansion
8. Each of the following is sometimes listed as a reasonable objective for a firm: (a) maximize profit (accounting income), (b) maximize sales (or share of the market), (c) maximize the value of a share of common stock t time periods from now, (d) ensure continuity of existence, (e) maximize the rate of growth, (f) maximize future dividends. Discuss each item and the extent of its relevance to the making of investment decisions.
You are the CFO of a profitable firm that is financially constrained. The stock market is currently going through a boom phase (assume this is a bubble). From what you have learned in this course, you know that the rational decision would be to issue new shares and use this income to pursue positive NPV projects. Before you make this decision, what is the most important variable that you would examine Assume you have information on all these variables. Select one: O a. Market Q O b. Fundamental Q O c. Elasticity of price demand for common shares O d. Cash Savings

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