Nonconstant Dividend Growth ValuationConroy 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.$61.65b. What is the expected stock price at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent.$65.86c. 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:4.15Capital 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 return? Do not round intermediate calculations. Round your answers to two decimal places.Dividend yield:5.13%Capital gains yield:7.35%Total return:11.16%Hide FeedbackPartially Correct

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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 $1.06. Analysts are predicting an 11.3% 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 5.4% per year. If Highline's equity cost of capital is 7.9% per year and its dividend payout ratio remains constant, for what price does the dividend - discount model predict Highline stock should sell?
Sidman Products's common stock currently sells for $42 a share. The firm is expected to earn $3.36 per share this year and to pay a year-end dividend of $2.40, and it finances only with common equity. a. If investors require an 8% return, what is the expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places. % b. If Sidman reinvests retained earnings in projects whose average return is equal to the stock's expected rate of return, what will be next year's EPS? (Hint: g = (1-Payout ratio)ROE). Do not round intermediate calculations. Round your answer to the nearest cent. per share
Constant Dividend Growth Valuation Boehm Incorporated is expected to pay a $1.00 per share dividend at the end of this year (i.e., D1 = $1.00). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rs, is 17%. What is the estimated value per share of Boehm's stock? Do not round intermediate calculations. Round your answer to the nearest cent.
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…
Analysts forecast that Dixie Chicks, Inc. (DCI) will pay a dividend of $3.00 a share now, continuing a long-term growth trend of 8% per year. If this trend is expected to continue indefinitely, and investors' required rate of return for DCI is 14%: a) What is the market value per share of DCI's common stock? b) What is the market value per share of DCI's common stock if required rate of return is 11%? c) If there is expected to be non-constant growth of 30% for the first year, then 24% for the next year, then 14% for next year, finally stabilizing to a constant growth of 9% per year in the 4th year what is the market value per share with the original required rate of return?
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Holt Enterprises recently paid a dividend, D0, of $3.00. It expects to have nonconstant growth of 25% for 2 years followed by a constant rate of 8% thereafter. The firm's required return is 14%. How far away is the horizon date? Choose one answer below The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. The terminal, or horizon, date is infinity since common stocks do not have a maturity date. 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. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero. What is the firm's horizon, or continuing, value? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is the firm's…
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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
The FI Corporation's dividends per share are expected to grow indefinitely by 5% per year. a. If this year's year-end dividend is $8 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM? b. If the expected earnings per share are $12, what is the implied value of the ROE on future investment opportunities? c. How much is the market paying per share for growth opportunities (i.e., for an ROE on future investments that exceeds the market capitalization rate)?
Taussig Technologies Corporation (TTC) has been growing at a rate of 18% per year in recent years. This same growth rate is expected to last for another 2 years, then decline to gn = 8%. a. If Do = $2.10 and rs = 9%, what is TTC's stock worth today? Do not round intermediate calculations. Round your answer to the nearest cent. $ 2.48 X What is its expected dividend yield at this time, that is, during Year 1? Do not round intermediate calculations. Round your answer to two decimal places. % 8.10 What is its capital gains yields at this time, that is, during Year 1? Do not round intermediate calculations. Round your answer to two decimal places. 8.10 % b. Now assume that TTC's period of supernormal growth is to last for 5 years rather than 2 years. How would this affect the price, dividend yield, and capital gains yield? I. Due to the longer period of supernormal growth, the value of the stock will be higher for each year. Although the total return will remain the same, the distribution…
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 =

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