A7X Corporation just paid a dividend of $1.35 per share. The dividends are expected to grow at 35 percent for the next 8 years and then level off to a growth rate of 8 percent indefinitely. If the required return is 14 percent, what is the price of the stock today? Multiple Choice $93.98 $118.87 $2.90 $121.24 $116.49

A7X Corporation just paid a dividend of $1.35 per share. The dividends are expected to grow at 35 percent for the next 8 years and then level off to a growth rate of 8 percent indefinitely. If the required return is 14 percent, what is the price of the stock today? Multiple Choice $93.98 $118.87 $2.90 $121.24 $116.49

Name: A7X Corporation just paid a dividend of $1.35 per share. The dividend
Uploaded: 2024-03-20T06:51:32.000Z
Channel: Bartleby
Description: A7X Corporation just paid a dividend of $1.35 per share. The dividends are expected to grow at 35 percent for the next 8 years and then level off to a growth rate of 8 percent indefinitely. If therequired return is 14 percent, what is the price of t

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 12P

See similar textbooks

Similar questions

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?
CALCULATING THE WACC Here is the condensed 2019 balance sheet for Skye Computer Company (in thousands of dollars): Skyes earnings per share last year were 3.20. The common stock sells for 55.00. last years dividend (D0) was 2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skyes preferred stock pays a dividend of 3.30 per share, and its preferred stock sells for 30.00 per share. The firms before-lax cost of debt is 10%, and its marginal tax rate is 25%. The firms currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skyes beta is 1.516. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals 1.2 million. a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. b. Now calculate the cost of common equity from retained earnings, using the CAPM method. c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r1 and rs as determined by the DCF method, and add that differential to the CAPM value for rs.) d. If Skye continues to use the same market-value capital structure, what is the firms WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock?
Start with the partial model in the file Ch07 P27 Build a Model.xlsx on the textbook’s Web site. Hamilton Landscaping’s dividend growth rate is expected to be 30% in the next year, drop to 15% from Year 1 to Year 2, and drop to a constant 5% for Year 2 and all subsequent years. Hamilton has just paid a dividend of $2.50, and its stock has a required return of 11%. What is Hamilton’s estimated stock price today? If you bought the stock at Year 0, what are your expected dividend yield and capital gains for the upcoming year? What are your expected dividend yield and capital gains for the second year (from Year 1 to Year 2)? Why aren’t these the same as for the first year?
Assume that Temp Force is a constant growth company whose last dividend (D0, which was paid yesterday) was 2.00 and whose dividend is expected to grow indefinitely at a 6% rate. (1) What is the firms current estimated intrinsic stock price? (2) What is the stocks expected value 1 year from now? (3) What are the expected dividend yield, the expected capital gains yield, and the expected total return during the first year?
Assume that IWT has completed its IPO and has a $112.5 million capital budget planned for the coming year. You have determined that its present capital structure (80% equity and 20% debt) is optimal, and its net income is forecasted at $140 million. Use the residual distribution approach to determine IWT’s total dollar distribution. Assume for now that the distribution is in the form of a dividend. Suppose IWT has 100 million shares of stock outstanding. What is the forecasted dividend payout ratio? What is the forecasted dividend per share? What would happen to the payout ratio and DPS if net income were forecasted to decrease to $90 million? To increase to $160 million? In general terms, how would a change in investment opportunities affect the payout ratio under the residual distribution policy? What are the advantages and disadvantages of the residual policy? (Hint: Don’t neglect signaling and clientele effects.)
Return on Common Stock You buy a share of The Ludwig Corporation stock for $21.40. You expect it to pay dividends of $1.07, $1.1449, and $1.2250 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $26.22 at the end of 3 years. Calculate the growth rate in dividends. Calculate the expected dividend yield. Assuming that the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to obtain the expected total rate of return. What is this stock’s expected total rate of return (assume the market is in equilibrium with the required return equal to the expected return)?
Calculation of gL and EPS Spencer Suppliess stock is currently selling for 60 a share. The firm is expected to earn 5.40 per share this year and to pay a year-end dividend of 3.60. a. If investors require a 9% return, what rate of growth must be expected for Spencer? b. If Spencer reinvests earnings in projects with average returns equal to the stocks expected rate of return, then what will be next years EPS? [Hint: gL = ROE Retention ratio.)
Stoneheart Group is expected to pay a dividend of $3.23 next year. The company's dividend growth rate is expected to be 3.6 percent indefinitely and investors require a return of 12 percent on the company's stock. What is the stock price? Multiple Choice. $26.92 $38.45 $36.53 $39.84 49421
A7X Corp. Just paid a dividend of $1.45 per share. The dividends are expected to grow at 40 percent for the next 6 years and then level off to a growth rate of 6 percent Indefinitely. If the required return is 13 percent, what is the price of the stock today? Multiple Cholce $99.08 $9710 $101.06 $1.87 $79.41
A7X Corporation just paid a dividend of $1.40 per share. The dividends are expected to grow at 30 percent for the next 8 years and then level off to a growth rate of 6 percent indefinitely.If the required return is 12 percent, what is the price of the stock today? Choose the correct option A. 106.78 B. 2.30 C. 104.69 D. 81.49 E. 102.59
Target Corporation (TGT) just paid a $3.14 dividend, and it is expected to grow at 6.25% for the next 3 years. After 3 years the dividend is expected to grow at the rate of 2.95% indefinitely. If the required return is 7.12%, what is the stock’s value today? A. $61.67 B. $70.95 C. $84.97 D. $98.04
Please help me stepwise, thanks. Full steps