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 ofthe 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 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.TermValueThe risk-free rate (RF) is 5.00%, the market riskpremium (RPM) is 6.00%, and Portman's beta is 1.70.Dividends one year from now (D1)Horizon value (P1)☑Intrinsic value of Portman's stock་Assuming that the market is in equilibrium, use theinformation just given to complete the table.What is the expected dividend yield for Portman's stock today?O 12.41%11.20%○ 8.96%○ 10.77%

Dividend yieldIt is referred to as the ratio which shows how much a company pays out in dividends…

Answered: As companies evolve, certain factors…

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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Flemington Farms is evaluating an extra dividend versus a share repurchase. In either case, $15,000 would be spent. Current earnings are $2.80 per share, and the stock currently sells for $75 per share. There are 2,800 shares outstanding. Ignore taxes and other imperfections. The PE ratio will be ____ if the firm issues the dividend as compared to ____ if the firm does the share repurchase.
The analysis that we have to provide is as follows: Review the specifics of the IPO, including underwriting spread and other expenses. Consider the concept of underpricing and a higher than normal first day spike in stock price. What does this mean for the issuing company? What does this mean for the underwriter? The Mini Case we have to go off of is: Mutt.Com was founded in 2015 by two graduates of the University of Wisconsin with help from Georgina Sloberg, who had built up an enviable reputation for backing new start-up businesses. Mutt.Com's user-friendly system was designed to find buyers for unwanted pets. Within 3 years, the company was generating revenues of $3.4 million a year and, despite racking up sizable losses, was regarded by investors as one of the hottest new e-commerce businesses. Therefore, the news that the company was preparing to go public generated considerable excitement. The company's entire equity capital of 1.5 million shares was owned by the two founders…
You heard about a company that is producing a product that you really believe in. You think you can scrape together some money to buy a couple of shares when you get paid next. First, you would like to make sure that the price seems fair so you will calculate its value. Analysts estimate that the price of the stock is likely to be $82.7 in one year. It is a young company, so they do not pay dividends yet. You estimated that the fair return on the stock is 11.2%. What is your best guess at the fair value of the stock given this information? Answer:
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
REH Corporation's most recent dividend was $2.82 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actions. a. Do nothing, which will leave the key financial variables unchanged. b. Invest in a new machine that will increase the dividend growth rate to 8% and lower the required return to 13%. c. Eliminate an unprofitable product line, which will increase the dividend growth rate to 9% and raise the required return to 17%. d. Merge with another firm, which will reduce the growth rate to 2% and raise the required return to 18%. e. Acquire a subsidiary operation from another manufacturer. The acquisition should increase the dividend growth rate to 9% and increase the required return to 17%.
If you have the assumption that a firm willl grow its dividends at a high constant rate for a few years and then later on its growth will significantly drop to 0%, then.... It can either be a constant, Shifting, negative, or no growth. Model
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure
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 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 Dividends one year from now (D1) Horizon value (P1) Intrinsic value of Portman's stock Value The risk-free rate (TRF) is 3.00%, the market risk premium (RPM) is 3.60%, and Portman's beta is 1.70.…
Assume that you are consulting the board of directors for a start-up firm. The firm is expecting small profits and possible losses in the next couple of years, but significant growth over the next 10 years. They have asked your opinion on a dividend policy for the firm. In your initial post, provide your opinion on a dividend policy along with reasoning using terminology and business factors discussed in this module.
A financial analyst is attempting to assess the future dividend policy of Environmental Systems by examining its life cycle. She anticipates no payout of earnings in the form of cash dividends during the development stage (I). During the growth stage (II), she anticipates 15 percent of earnings will be distributed as dividends. As the firm progresses to the expansion stage (III), the payout ratio will go up to 33 percent and will eventually reach 57 percent during the maturity stage (IV). a. Assuming earnings per share will be as follows during each of the four stages, indicate the cash dividend per share (if any) during each stage. (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations and round your answers to 2 decimal places.) Stage I Stage II Stage III Stage IV Stage I Stage II Stage III Stage IV $ 0.30 1.85 2.60 3.80 Aftertax income Dividends b. Assume in Stage IV that an investor owns 335 shares and is in a 15 percent tax…
You are now an equity analyst. We now find that the actual valuation of Company X is 130. Your manager suggests basing the price on a discounted dividend model and a discounted free cash flow valuation method. However, these two methods may produce very different estimates when applied to actual data. The discounted dividend model works out to a price of 60, while the discounted free cash flow valuation method works out to a price of 10. Question: Explain to your management why the two valuation methodologies provide different estimations. Specifically, discuss the assumptions implicit in the two methodologies, as well as the assumptions you made when doing your analysis. Why do these projections differ from Company X's current stock price?
A) Suppose that Facebook has earnings per share (expected next year) of $6.20 and that Facebook’s discount rate for equity is 12%. If Facebook is not expected to grow at all, what would Facebook’s share price be? Do not include the $ sign and answer to the nearest $0.01. B) Instead, Facebook is trading at $160 per share. What is the present value of Facebook’s growth opportunities per share? Do not include the $ sign and answer to the nearest $0.01.

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