A. Giant Growth Co. is growing fast. Dividends are expected to grow at a 20% growth rate for the next three years, 30% in the fourth year, then fall off to a constant 7% growth rate thereafter. The required rate of return is 23% and the company recently paid a R1.40 dividend. Determine the intrinsic value of the share. D1 D2 D3 D4 P4 The intrinsic value of the share (Po) B. The current market price of the share is R45. Would you buy the share? Please state why?

A. Giant Growth Co. is growing fast. Dividends are expected to grow at a 20% growth rate for the next three years, 30% in the fourth year, then fall off to a constant 7% growth rate thereafter. The required rate of return is 23% and the company recently paid a R1.40 dividend. Determine the intrinsic value of the share. D1 D2 D3 D4 P4 The intrinsic value of the share (Po) B. The current market price of the share is R45. Would you buy the share? Please state why?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 24P: Conroy Consulting Corporation (CCC) has a current dividend of D0 = $2.5. Shareholders require a 12%...

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D1 D2 D3 D4 P4

The intrinsic value of the share (Po)

B. The current market price of the share is R45. Would you buy the share? Please state why?

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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Conroy Consulting Corporation (CCC) has a current dividend of D0 = $2.5. Shareholders require a 12% rate of return. Although the dividend has been growing at a rate of 30% per year in recent years, this growth rate is expected to last only for another 2 years (g0,1 = g1,2 = 30%). After Year 2, the growth rate will stabilize at gL = 7%. What is CCC’s stock worth today? What is the expected stock price at Year 1? What is the Year 1 expected (1) dividend yield, (2) capital gains yield, and (3) total return? What is its expected dividend yield for the second year? The expected capital gains yield? The expected total return?
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