Nonconstant Dividend Growth ValuationConroy Consulting Corporation (CCC) has a current dividend of Do = $1.20. Shareholders require an 11% rate of return. Although thedividend has been growing at a rate of 28% per year in recent years, this growth rate is expected to last only for another 2 years (90,1 =91,228%). After Year 2, the growth rate will stabilize at g- 6%.a. What is CCC's stock worth today? Do not round intermediate calculations. Round your answer to the nearest cent.$b. What is the expected stock price at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent.$c. What is the Year 1 expected (1) dividend yield, (2) capital gains yield, and (3) total return? Do not round intermediate calculations.Round your answers to two decimal places.%Dividend yield:Capital gains yield:%Total return:%d. What is its expected dividend yield for the second year? The expected capital gains yield? The expected total return? Do not roundintermediate calculations. Round your answers to two decimal places.Dividend yield:Capital gains yield:Total return:%%%

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Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section: Chapter Questions

Problem 21P

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Nonconstant Dividend Growth Valuation Conroy Consulting Corporation (CCC) has a current dividend of Do = $2.00. Shareholders require an 11% rate of return. Although the dividend has been growing at a rate of 28% per year in recent years, this growth rate is expected to last only for another 2 years (go,1 = g1,2 = 28%). After Year 2, the growth rate will stabilize at gL = 5%. a. What is CCC's stock worth today? Do not round intermediate calculations. Round your answer to the nearest cent. $ 61.65 b. What is the expected stock price at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. $ 65.86 c. What is the Year 1 expected (1) dividend yield, (2) capital gains yield, and (3) total return? Do not round intermediate calculations. Round your answers to two decimal places. Dividend yield: 4.15 Capital gains yield: 6.83 % Total return: 10.98 % d. What is its expected dividend yield for the second year? The expected capital gains yield? The expected total…
Conroy Consulting Corporation (CCC) has a current dividend of D0 = $2.70. Shareholders require a 10% rate of return. Although the dividend has been growing at a rate of 29% per year in recent years, this growth rate is expected to last only for another 2 years (g0,1 = g1,2 = 29%). After Year 2, the growth rate will stabilize at gL = 4%. What is CCC's stock worth today? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is the expected stock price at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is the Year 1 expected (1) dividend yield, (2) capital gains yield, and (3) total return? Do not round intermediate calculations. Round your answers to two decimal places. Dividend yield: % Capital gains yield: % Total return: % What is its expected dividend yield for the second year? The expected capital gains yield? The expected total return? Do not round intermediate calculations. Round your answers to two…
Conroy Consulting Corporation (CCC) has a current dividend of D0 = $1.00. Shareholders require a 14% rate of return. Although the dividend has been growing at a rate of 25% per year in recent years, this growth rate is expected to last only for another 2 years (g0,1 = g1,2 = 25%). After Year 2, the growth rate will stabilize at gL = 8%. /!\ Be mindful of rounding errors! Rounding intermediary calculations may lead to slight errors. What is CCC's stock worth today?Do not round intermediate calculations. Round your answer to the nearest cent. Answer What is the expected stock price at Year 1?Do not round intermediate calculations. Round your answer to the nearest cent. Answer What is the Year 1 expected dividend yield? Do not round intermediate calculations. Round your answer to two decimal places. Answer What is the Year 1 capital gain yield? Do not round intermediate calculations. Round your answer to two decimal places. Answer What is the Year 1…
The 5-year average P/E ratio for a firm is 20.00. This year 's earning per share is $5.00 and it is expected to at a constant growth rate of 6%. What is the projected stock price for the next year? А. S4 В. $104 C. S80.25 D. $94.33 E. $106
Holt Enterprises recently paid a dividend. Do. of $3.25. It expects to have nonconstant growth of 17% for 2 years followed by a constant rate of 8% thereafter. The firm's required return is 18%. a. How far away is the horizon date? 1. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. II. The terminal, or horizon, date is infinity since common stocks do not have a maturity date. III. The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected dividends at time zero. IV. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero. V. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2. -Select- b. What is the firm's horizon, or continuing, value? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. What is the firm's…
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Dividend (Div) Required return (r) Growth rate (g) Div r-g Now we can try this by introducing constant growth in dividends. A. Dividend is $1.00 per year. Investors require a 10% return. Initially, it is thought there will be 0% dividend growth. B. Dividend is $1.00. Required return is still 10% but investors now expect the dividend will grow 2% per annum. C. Dividend is $1.00 per year. Market optimism drives the required return down to 8% while at the same time a new growth strategy boosts the expected dividend growth rate to 6%. 11 =
The 5-year average P/E ratio for a firm is 20.00. This year 's earning per share is $5.00 and it is expected to at a constant growth rate of 6%. What is the projected stock price for the next year? A. $4 B. $104 C. s80.25 D. S94.33 E. $106
Holt Enterprises recently paid a dividend, Do, of $2.75. It expects to have nonconstant growth of 21% for 2 years followed by a constant rate of 5% thereafter. The firm's required return is 19%. a. How far away is the horizon date? I. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. II. The terminal, or horizon, date is infinity since common stocks do not have a maturity date. III. The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected dividends at time zero. IV. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero. V. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2. -Select- v b. What is the firm's horizon, or continuing, value? Do not round intermediate calculations. Round your answer to the nearest cent. 2$ c. What is the…
Nonconstant Growth Tattletale News Corp. has been growing at a rate of 20% per year, and you expect this growth rate in both earnings and dividends to continue for another 3 years. If the last dividend paid was $2, what will the next dividend be ? Explain your answer. If the discount rate is 15% and the steady growth rate after 3 years is 4%, what should the stock price be today? Explain your answer.
Conroy Consulting Corporation (CCC).has been growing at a rate of 30% per year in recent years. This same nonconstant growth rate is expected to last for another 2 years (g0,1 = g1,2 = 30%). a. If Do = $2.50, r, = 12%, and g1, = 7%, then what is CCC's stock worth today? What are its expected dividend yield and capital gains yield at this time? b. Now assume that CCC's period of nonconstant growth is to last another 5 years rather than 2 years (go,1 this affect its price, dividend yield, and capital gains yield? Answer in words only. c. What will CCC's dividend yield and capital gains yield be once its period of nonconstant growth ends? (Hint: These values will be the same regardicss of whether you examine the case of 2 or 5 years of nonconstant growth, and the calculations are very easy.) d. Of what interest to investors is the relationship over time between dividend yield and capital gains yield? %3D g1,2 = 82,3 = g3,4 = 84,5 = 30%). How would
Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $27.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate? a. 5.95% b. 5.54% O c. 6.01% O d. 6.91% O e. 6.07%

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