CLT Group’s stock has a beta of 1.4. The company’s earnings this year is $5 per share and the dividend payout ratio is 65%. The return on equity of CLT Group is 15%. The rates of return on the T-Bills and the market portfolio are 2% and 10% respectively. Calculate the current intrinsic value per share of CLT Group’s stock. Calculate the present value of growth opportunity of CLT Group’s stock. Suppose you are the chief financial officer of CLT Group. The senior management is not very happy about the current capital gain yield of the company stock. They ask you in a meeting on how to increase the capital gain yield. Explain to them how the capital gain yield of the stock can be increased. (Hint: capital gain yield = constant growth rate)
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
CLT Group’s stock has a beta of 1.4. The company’s earnings this year is $5 per share and the dividend payout ratio is 65%. The
The
- Calculate the current intrinsic value per share of CLT Group’s stock.
- Calculate the
present value of growth opportunity of CLT Group’s stock. - Suppose you are the chief financial officer of CLT Group. The senior management is not very happy about the current
capital gain yield of the company stock. They ask you in a meeting on how to increase the capital gain yield. Explain to them how the capital gain yield of the stock can be increased. (Hint: capital gain yield = constant growth rate)
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