Nonconstant Dividend Growth ValuationAssume that the average firm in C&J Corporation's industry is expected to grow at a constant rate of 4% and that its dividend yield is 7%. C&J is about as risky as the average firm in theindustry and just paid a dividend (Do) of $2. Analysts expect that the growth rate of dividends will be 50% during the first year (90,1 = 50%) and 20% during the second year (91,2= 20%).After Year 2, dividend growth will be constant at 4%. What is the required rate of return on C&J's stock? What is the estimated intrinsic price per share? Do not round intermediate calculations.Round the monetary value to the nearest cent and percentage value to the nearest whole number.rs:Po: $%

Constant growth rate = 4%Dividend yield = 7%Dividend (D0) = $2Growth rate in year 1 (G1) = 50%Growth…

Answered: Nonconstant Dividend Growth Valuation…

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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Assume Highline Company has just paid an annual dividend of $1.07. Analysts are predicting an 10.5% per year growth rate in earnings over the next five years. After then, Highline's earnings are expected to grow at the current industry average of 5.3% per year. If Highline's equity cost of capital is 7.7% per year and its dividend payout ratio remains constant, for what price does the dividend-discount model predict Highline stock should sell? The value of Highline's stock is $ (Round to the nearest cent.) CITT
Yamana Gold Inc. (AUY) currently no pays dividend but its new management will pay a dividend at the end of Year 4. Year 4 earnings are expected to be $2.97, and AUY will maintain a payout ratio of 47%. With an assumption that AUY’s constant growth rate is 3.42%, and a required rate of return of 7.17%, the present value of AUY is closest to A. $30.24. B. $49.71. C. $70.92. D. $91.86.
Gillette Corporation will pay an annual dividend of $ 0.63 one year from now. Analysts expect this dividend to grow at 1 1.1 % per year thereafter until the 6th year. Thereafter, growth will level off at 1.6 % per year. According to the dividend- discount model, what is the value of a Gillette share if the firm's equity cost of capital is 8.4 %? Question content area bottom Part 1 The value of a Gillette share is $ enter your response here. (Round to the nearest cent.)
Assume that the average firm in C&J Corporation's industry is expected to grow at a constant rate of 7% and that its dividend yield is 8%. C&J is about as risky as the average firm in the industry and just paid a dividend (Do) of $1.5. Analysts expect that the growth rate of dividends will be 50% during the first year (90,1 = 50%) and 25% during the second year (91,2 = 25%). After Year 2, dividend growth will be constant at 7%. What is the required rate of return on C&J's stock? What is the estimated intrinsic price per share? Do not round intermediate calculations. Round the monetary value to the nearest cent and percentage value to the nearest whole number. rs: Po: $ 61 40.18 %
Nonconstant Dividend Growth Valuation A company currently pays a dividend of $2.6 per share (D0 = $2.6). It is estimated that the company's dividend will grow at a rate of 17% per year for the next 2 years, and then at a constant rate of 7% thereafter. The company's stock has a beta of 1.6, the risk-free rate is 9%, and the market risk premium is 6%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.
2. You are an equity analyst examining a firm that is currently trading at $40/share. The consensus market estimates for EPS (Earnings Per Share) for the next three years are $2 next year and $3 the year after and $4 the year after that (year 3). You believe these EPS estimates are accurate. Other similar firms trade at a P/E multiple of 12.5 with an expected average long term growth rate estimate starting today of 4%. Assume all earnings are paid out in dividends. a. If you believe your stock reaches steady state and will grow from then like other similar firms today, would you recommend buying the shares at the current stock price? b. After the first year once the dividend is paid, the stock price increases to $55 as it becomes known to everyone that the long term growth rate will actually be 1% more (5%). Ignoring tax issues, would you recommend buy, hold or sell of the stock at that time?
Barton Industries expects next year's annual dividend, D1, to be $2.30 and it expects dividends to grow at a constant rate g = 4.9%. The firm's current common stock price, P0, is $25.00. If it needs to issue new common stock, the firm will encounter a 4.5% flotation cost, F. What is the flotation cost adjustment that must be added to its cost of retained earnings? Do not round intermediate calculations. Round your answer to two decimal places. _____% What is the cost of new common equity considering the estimate made from the three estimation methodologies? Do not round intermediate calculations. Round your answer to two decimal places. _____%
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Nonconstant Dividend Growth Valuation A company currently pays a dividend of $1 per share (D0 = $1). It is estimated that the company's dividend will grow at a rate of 21% per year for the next 2 years, and then at a constant rate of 8% thereafter. The company's stock has a beta of 1.2, the risk-free rate is 7.5%, and the market risk premium is 3.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent. $
An equity analyst from Jefferies & Co. expects Johnson & Johnson (NYSE: JNJ) current annual dividend of $1.50 to grow by 25% in one year and by 15% for two consecutive years. The analyst then forecasts the initial non-linear supernormal dividend growth rate of 15% to decline linearly to a final and constant growth rate of 8% over a 10-year period. Company's estimated cost of equity is 12%. Which of the following is closest to the estimate of the fair value of JNJ based on these inputs? O $68.26 O $54.75 O $51.27 O $76.21
The “Land of Oz” company expects its ROE to be 20%. The company plans to maintain a retention ratio of 60% and to have a constant dividend growth rate. The company’s forecast earnings for the year is $0.34 per share (i.e., E1 = $0.34). Investors expect a 13% rate of return on the “Land of Oz” stock. What is the present value of growth opportunities (PVGO) for the “Land of Oz”?

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