ABC, Inc has a current dividend of $1.00 and a required rate of return of 12%. Adividend growth rate of 15% is projected for the next 2 years, followed by a 10%growth rate for the next 4 years before settling down to a constant 4% growth ratethereafter. What is the expected stock price of ABC in year 4?1) $14.192) $17.513) $20.644) $23.18

The dividend growth model is a method used to determine the intrinsic value of a stock based on its…

Answered: ABC, Inc has a current dividend of…

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

See similar textbooks

Similar questions

The FI Corporation’s dividends per share are expected to grow indefinitely by 8% per year. Required: If this year’s year-end dividend is $3.00 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM? Note: Round your answer to 2 decimal places. If the expected earnings per share are $9.00, what is the implied value of the ROE on future investment opportunities? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. How much is the market paying per share for growth opportunities (i.e., for an ROE on future investments that exceeds the market capitalization rate)? Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
A company just paid a $1.75 dividend and expects it to grow 5% for the next 3 years. After 3 years, the dividend is expected to grow at 3% indefinitely. If the required rate of return is 9%, what is the stock's value today? a. What is the Future Value of the Dividends in Years 1, 2, 3, and 4? b. What is the Present Value of the Dividends in Years 1, 2, 3, and 4? c. What is the stock's value in Year 4 (Terminal Value)? d. What is the stock's value today?
A company currently pays a dividend of $3.8 per share (D0 = $3.8). It is estimated that the company's dividend will grow at a rate of 25% per year for the next 2 years, and then at a constant rate of 6% thereafter. The company's stock has a beta of 1.4, the risk-free rate is 9.5%, and the market risk premium is 4.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.
You observe a stock price of $17. You expect a dividend growth rate of 5% and the current year's dividend was $1.70. What is the required return? 15% 15.5% 10%
YZ Inc. is experiencing rapid growth. Earnings and dividends are expected to grow at a rate of 17% during the next 2 years, at 15% the following year, and at a constant rate of 7% during Year 4 and thereafter. Its last dividend was $1.55, and its required rate of return is 12%. a. Calculate the value of the stock today. b. Calculate P1 and P2 (Prices for Year 1 and Year 2). c. Calculate the dividend and capital gains yields for Years 1, 2, and 3.
A company currently pays a dividend of $3.2 per share (D0 = $3.2). It is estimated that the company's dividend will grow at a rate of 23% per year for the next 2 years, and then at a constant rate of 8% thereafter. The company's stock has a beta of 1.3, the risk-free rate is 9.5%, and the market risk premium is 4.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.
Francis Inc.'s stock has a required rate of return of 10.25 %, and it sells for $30.00 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D1? $1.28 $1.21 $1.08 $1.34 $1.47
A company currently pays a dividend of $2.2 per share (D0 = $2.2). It is estimated that the company's dividend will grow at a rate of 25% per year for the next 2 years, and then at a constant rate of 5% thereafter. The company's stock has a beta of 1.1, the risk-free rate is 9.5%, and the market risk premium is 6.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.
Gordon Growth Company is expected to pay a dividend of $4 next period and dividends are expected to grow at 6% per year. The required return is 16%. What is the price expected to be in year 4? a. $40 b. $10 c. $41.6 d. $50.50
Staggert Corp. will pay dividends of $5.00, $6.25, $4.75, and $3.00 in the next four years. Thereafter, the company expects its dividend growth rate to be constant at 7.0 percent. If the required rate of return is 17.0 percent, what is the current value of the stock? (Round intermediate calculations and final answer to 2 decimal places, e.g. 16.25.) Current Value $ ________________
Entergy stock is currently trading at $40. The company is currently paying a dividend of $4, which is expected to grow at 5% in a year and then at g% forever. If the required rate of return is 9% and the stock price next year is $45, find the value of g.
The Fl Corporation's dividends per share are expected to grow indefinitely by 8% per year. Required: a. If this year's year-end dividend is $3.00 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM? Note: Round your answer to 2 decimal places. b. If the expected earnings per share are $9.00, what is the implied value of the ROE on future investment opportunities? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. c. How much is the market paying per share for growth opportunities (i.e., for an ROE on future investments that exceeds the market capitalization rate)? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. a. Current stock price b. Value of ROE c. Amount % per share

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS