9. An analyst is attempting to value shares of the Keystone Company. The company has just paid a dividend of $0.58 per share. Dividends are expected to grow by 20 percent next year and 15 percent the year after that. From the third year onward, dividends are expected to grow at 5.6 percent per year indefinitely. Using what you know about stock valuation and the Dividend Discount Model and given a required rate of return of 8.5 percent, the value of the stock is closest to: A) $25.40 B) $26.00 C) $28.00 D) $32.50

9. An analyst is attempting to value shares of the Keystone Company. The company has just paid a dividend of $0.58 per share. Dividends are expected to grow by 20 percent next year and 15 percent the year after that. From the third year onward, dividends are expected to grow at 5.6 percent per year indefinitely. Using what you know about stock valuation and the Dividend Discount Model and given a required rate of return of 8.5 percent, the value of the stock is closest to: A) $25.40 B) $26.00 C) $28.00 D) $32.50

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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Analysts forecast that Dixie Chicks, Inc. (DCI) will pay a dividend of $3.00 a share now, continuing a long-term growth trend of 8% per year. If this trend is expected to continue indefinitely, and investors' required rate of return for DCI is 14%: a) What is the market value per share of DCI's common stock? b) What is the market value per share of DCI's common stock if required rate of return is 11%? c) If there is expected to be non-constant growth of 30% for the first year, then 24% for the next year, then 14% for next year, finally stabilizing to a constant growth of 9% per year in the 4th year what is the market value per share with the original required rate of return?
As a stock analyst Mooch covers the common stock of GE, which sells for $11 per share and just paid a dividend of $.52. The best estimate Mooch can come up is that the next two dividends for GE will be $.55 and then $.605, with steady state annual growth rate of 10 percent thereafter. What required return per year for the common stock of GE must be?
Use the Dividend Discount Model to compute the expected price of a stock in 4 years. Each share is expected to pay a dividend of $1.44 in one year. Investors' annual required rate of return is 20.5%, and the expected growth rate of the dividend is 3% per annum. Answer to the nearest penny. Answer: Check
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Assume that you are considering purchase of common stock issued by REC Corporation. Your research has shown that the dividends are paid regularly on a semiannual schedule. The most recent (past) semiannual dividend paid was D0 = $12 per share. In the future, dividends are expected to grow at an annual rate of 4%. You have determined that your required rate of return (discount rate) for this stock would be 6.5% per year. NOTE: $12 is the amount that was paid semiannually. It does not need to be divided by two. Based on this information, answer the following: A. What are the next four upcoming dividends for this common stock (i.e., D1, D2, D3, D4)? B. Using the Discounted Cash Flow Method, what is the value of this common stock? C. Assume that the current market price of this common stock is $325 per share. At this price, what is the stock's annual expected return according to the Discounted Cash Flow Method? D. Based on your answer to part B, would you invest in…
(Common stock valuation) The common stock of NCP paid $1.35 in dividends last year. Dividends are expected to grow at an annual rate of 9.50 percent for an indefinite number of years. a. If your required rate of return is 11.60 percent, what is the value of the stock for you? b. Should you make the investment? a. If your required rate of return is 11.60 percent, the value of the stock for you is $ (Round to the nearest cent.)
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