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Cullumber Infotech is a fast-growing communications company. The company did not pay a dividend last year and is not expected to do so for the next two years. Last year the company’s growth accelerated, and management expects to grow the business at a rate of 40 percent for the next five years before growth slows to a more stable rate of 8 percent. In the third year, management has
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Dividend Growth Model is a method used for finding the value of the stock price of a company. This method assumes that all the future dividend payments are worth for the value of the stock. It is the net present value of the dividends paid on the future.
The value of the stock can be calculated as follows:
Where,
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- Blanket Company has paid quarterly dividends every quarter for the past 15 years. Lately, slowing sales have created a cash crunch for the company. While the company still has positive retained earnings, the retained earnings balance is close to zero. Should the company borrow to continue to pay dividends? Why or why not?Cullumber Infotech is a fast-growing communications company. The company did not pay a dividend last year and is not expected to do so for the next two years. Last year the company’s growth accelerated, and management expects to grow the business at a rate of 40 percent for the next five years before growth slows to a more stable rate of 8 percent. In the third year, management has forecasted a dividend payment of $1.10. Dividends will grow with the company thereafter. Calculate stock's value if required rate of return is 18%AAA is a fast-growing communications company. The company did not pay a dividend last year and is not expected to do so for the next two years. Last year the company’s growth accelerated, and management expects to grow the business at a rate of 40 percent for the next four years before growth slows to a more stable rate of 10 percent. In the third year, the company has forecasted a dividend payment of $1.10. Dividends will grow with the company thereafter. Calculate the value of the company’s stock at the end of its rapid growth period (i.e., at the end of four years). The required rate of return for such stocks is 15 percent. What is the current value of this stock?
- Small Fry, Inc. plans to re-invest all of its earnings to expand its operations. Dividends were $2.00 per share this past year and are expected to grow at a rate of 12% per year until the end of year 4. At that time, competitors are likely to bring out the next sensational new vegan product. Analysts predict that at the end of year 4, Small Fry, Inc. will slow down production and dividend growth will slow to 6%. Small Fry’s current cost of capital is 8%. Find the value of Small Fry’s stock today.Home Place Hotels Inc. is entering into a 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that time, but when completed, it should allow the company to enjoy much improved growth in earnings and dividends. Last year, the company paid a dividend of $3.40. It expects zero growth in the next year. In years 2 and 3, 5% growth is expected, and in year 4, 15% growth. In year 5 and thereafter, growth should be a constant 10% per year. What is the maximum price per share that an investor who requires a return of 14% should pay for Home Place Hotels common stock?Home Place Hotels, Inc., is entering into a 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that time, but when it is complete, it should allow the company to enjoy much improved growth in earnings and dividends. Last year, the company paid a dividend of $4.70. It expects zero growth in the next year. In years 2 and 3, 5% growth is expected, and in year 4, 17% growth. In year 5 and thereafter, growth should be a constant 7% per year. What is the maximum price per share that an investor who requires a return of 16% should pay for Home Place Hotels common stock?
- Home Place Hotels, Inc., is entering into a 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that time, but when it is complete, it should allow the company to enjoy much improved growth in earnings and dividends. Last year, the company paid a dividend of $3.70.It expects zero growth in the next year. In years 2 and 3, 5% growth is expected, and in year 4, 17%growth. In year 5 and thereafter, growth should be a constant 11%per year. What is the maximum price per share that an investor who requires a return of 16% should pay for Home Place Hotels common stock? The maximum price per share that an investor who requires a return of 16% should pay for Home Place Hotels common stock is $_____________Home Place Hotels, Inc., is entering into a 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that time, but when it is complete, it should allow the company to enjoy much improved growth in earnings and dividends. Last year, the company paid a dividend of $2.20.It expects zero growth in the next year. In years 2 and 3, 6% growth is expected, and in year 4, 19% growth. In year 5 and thereafter, growth should be a constant 9% per year. What is the maximum price per share that an investor who requires a return of 18% should pay for Home Place Hotels common stock? Round to nearest cent.Amazing Co. is entering into a 3-year remodeling and expansion project. The constructionwill have a limiting effect on earnings during that time, but when it is complete, it shouldallow the company to enjoy much improved growth in earnings and dividends. Last year, thecompany paid a dividend of $3.40. It expects zero growth in the next year. In years 2 and 3,5% growth is expected, and in year 4, 15% growth. In year 5 and thereafter, growth shouldbe a constant 10% per year. What is the maximum price per share that an investor whorequires a return of 14% should pay for Amazing Co.’s ordinary share?
- Carla Vista Corp. has been selling electrical supplies for the past 20 years. The company’s product line has changed very little in the past five years, and the company’s management does not expect to add any new items for the foreseeable future. Last year, the company paid a dividend of $5.65 to its common stockholders. The company is not expected to increase its dividends for the next several years. If your required rate of return for such firms is 14 percent, what is the current value of this company’s stock?Day and Associates is experiencing a period of abnormal growth. The last dividend paid by Day was $0.75. Next year, they anticipate growth in dividends and earnings of 25% followed by negative 5% growth in the second year. The company will level off to a normal growth rate of 8% in year three and is expected to maintain an 8% growth rate for the foreseeable future. Investors require a 12% rate of return on Day. The value of Day stock today is closest to?Please note that I have been given three wrong answers on this question. Hope you provide the correct answer. AAA is a fast-growing communications company. The company did not pay a dividend last year and is not expected to do so for the next two years. Last year the company’s growth accelerated, and management expects to grow the business at a rate of 40 percent for the next four years before growth slows to a more stable rate of 10 percent. In the third year, the company has forecasted a dividend payment of $1.10. Dividends will grow with the company thereafter. Calculate the value of the company’s stock at the end of its rapid growth period (i.e., at the end of four years). The required rate of return for such stocks is 15 percent. What is the current value of this stock?
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