NDM Limited is expected to pay $4.95 dividends per common stock at end of the year. This dividend is expected to grow at a constant rate of 6% per annum. The stock is currently trading at $82.50. The company has a pre-tax cost of debt of 9.30% and its preferred stock is trading at $220 with a dividend of $19.25. The tax rate is 40% Determine the company’s WACC if its capital structure is as follows: Common Stock $100 000 000 Preferred Stock $40 000 000 Bonds $110 000 000 Total $250 000 000 The company has a high amount of debt. Briefly discuss the importance of Gearing ratios as a financial risk indicator and identify one that can be used in this case.
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.
NDM Limited is expected to pay $4.95 dividends per common stock at end of the year. This dividend is expected to grow at a constant rate of 6% per annum. The stock is currently trading at $82.50. The company has a pre-tax cost of debt of 9.30% and its
- Determine the company’s WACC if its capital structure is as follows:
Common Stock $100 000 000
Preferred Stock $40 000 000
Bonds $110 000 000
Total $250 000 000
- The company has a high amount of debt. Briefly discuss the importance of Gearing ratios as a financial risk indicator and identify one that can be used in this case.
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