One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He tells you that the company has a good track record of paying regular dividend every year and the dividends are likely to grow at a rate of 4% per year on an average for the foreseeable future. The next dividend is expected to be $1.50 per share and the shares are selling in the secondary market for $28.50 per share. As per your financial plans and life profile, you feel that any risky investment like in shares of a company, should earn at least 9% per annum. What might cause a difference between a share’s intrinsic value and its market price? (100 – 150 words

One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He tells you that the company has a good track record of paying regular dividend every year and the dividends are likely to grow at a rate of 4% per year on an average for the foreseeable future. The next dividend is expected to be $1.50 per share and the shares are selling in the secondary market for $28.50 per share. As per your financial plans and life profile, you feel that any risky investment like in shares of a company, should earn at least 9% per annum. What might cause a difference between a share’s intrinsic value and its market price? (100 – 150 words

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Description: One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He tells you that the company has a good track record of paying regular dividend every year and the dividends are likely to grow at a rate of 4% per yea

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 23P

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One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He tells you that the company has a good track record of paying regular dividend every year and the dividends are likely to grow at a rate of 4% per year on an average for the foreseeable future. The next dividend is expected to be $1.50 per share and the shares are selling in the secondary market for $28.50 per share. As per your financial plans and life profile, you feel that any risky investment like in shares of a company, should earn at least 9% per annum. Compute the intrinsic value of the share (Intrinsic value of any financial instrument is the value that it should sell for in the market). Will you buy these shares? Discuss your reasons and support your reasoning with relevant computations.
One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He tells you that the company has a good track record of paying regular dividend every year and the dividends are likely to grow at a rate of 4% per year on an average for the foreseeable future. The next dividend is expected to be $1.50 per share and the shares are selling in the secondary market for $28.50 per share. As per your financial plans and life profile, you feel that any risky investment like in shares of a company, should earn at least 9% per annum. 1. Compute the intrinsic value of the share (Intrinsic value of any financial instrument is the value that it should sell for in the market). 2. Will you buy these shares? Discuss your reasons briefly in no more than 50 – 100 words and support your reasoning with relevant computations. 3. What might cause a difference between a share’s intrinsic value and its market price? (100 – 150 words)
One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He tells you that the company has a good track record of paying regular dividend every year and the dividends are likely to grow at a rate of 4% per year on an average for the foreseeable future. The next dividend is expected to be $1.50 per share and the shares are selling in the secondary market for $28.50 per share. As per your financial plans and life profile, you feel that any risky investment like in shares of a company, should earn at least 9% per annum. 1. Compute the intrinsic value of the share (Intrinsic value of any financial instrument is the value that it should sell for in the market). 2. Will you buy these shares? Discuss your reasons briefly and support reason with relevant computations. 3. What might cause a difference between a share's intrinsic value and its market price?
One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He tells you that the company has a good track record of paying regular dividend every year and the dividends are likely to grow at a rate of 4% per year on an average for the foreseeable future. The next dividend is expected to be $1.50 per share and the shares are selling in the secondary market for $28.50 per share. As per your financial plans and life profile, you feel that any risky investment like in shares of a company, should earn at least 9% per annum. 1. Compute the intrinsic value of the share (Intrinsic value of any financial instrument is the value that it should sell for in the market). 2. Will you buy these shares? give reason with relevant computations. 3. What might cause a difference between a share’s intrinsic value and its market price?
One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He tells you that the company has a good track record of paying regular dividend every year and the dividends are likely to grow at a rate of 4% per year on an average for the foreseeable future. The next dividend is expected to be $1.50 per share and the shares are selling in the secondary market for $28.50 per share. As per your financial plans and life profile, you feel that any risky investment like in shares of a company, should earn at least 9% per annum. Compute the intrinsic value of the share (Intrinsic value of any financial instrument is the value that it should sell for in the market). Will you buy these shares? Discuss and show why? What might cause a difference between a share’s intrinsic value and its market price?
One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He tells you that the company has a good track record of paying regular dividend every year and the dividends are likely to grow at a rate of 4% per year on an average for the foreseeable future. The next dividend is expected to be $1.50 per share and the shares are selling in the secondary market for $28.50 per share. As per your financial plans and life profile, you feel that any risky investment like in shares of a company, should earn at least 9% per annum. Compute the intrinsic value of the share
One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He tells you that the company has a good track record of paying regular dividend every year and the dividends are likely to grow at a rate of 4% per year on an average for the foreseeable future. The next dividend is expected to be $1.50 per share and the shares are selling in the secondary market for $28.50 per share. As per your financial plans and life profile, you feel that any risky investment like in shares of a company, should earn at least 9% per annum. 2. Will you buy these shares? Discuss your reasons briefly in no more than 50 – 100 words and support your reasoning with relevant computations.
One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He tells you that the company has a good track record of paying regular dividend every year and the dividends are likely to grow at a rate of 4% per year on an average for the foreseeable future. The next dividend is expected to be $1.50 per share and the shares are selling in the secondary market for $28.50 per share. As per your financial plans and life profile, you feel that any risky investment like in shares of a company, should earn at least 9% per annum. 1. What might cause a difference between a share’s intrinsic value and its market price?
As an analyst at Chitalu & Daka Securities, you are responsible for making recommendations to your firm’s clients regarding common stocks. After gathering data, you have found that their dividends have been growing at a rate of 10% per year to the current (D0) rate of K0.60 per share. The stock is currently selling for K12 per share, and you believe that an appropriate rate of return for this stock is 15% per year.i. If you expect that the dividend will continue to grow at a 10% rate into the foreseeable future, what is the highest price at which you would recommend purchasing this stock to your clients?ii. Suppose now that you determine that the company’s new product line will cause much higher growth in the near future. Your revised estimate is for a three-year period of 20% annual growth which will be followed by a return to the historical 10% growth rate. Under these new assumptions, what is the current value of the stock using the two-stage dividend growth model?iii. After…
As a broker at Churnem & Burnem Securities, you recommend stocks to your clients. After gathering data on Furniture Factory, you have found that its dividend has been growing at a rate of 4% per year to the current (Do) $1.35 per share. The stock is now selling for $24.50 per share, and you believe that an appropriate rate of return for this stock is 11% year. If you expect that the dividend will continue to grow at a 4% rate into the foreseeable future, what is the highest price at which you would recommend purchasing this stock to your clients? Suppose now that you believe that the company’s new product line will cause much higher growth in the near future. Your new estimate is for a three-year period of 9% annual growth to be followed by a return to the historical 4% growth rate. Under these new assumptions, what is the value using the two-stage dividend growth model? You now realize that it is likely that the growth will transition from 9% down to 4% gradually, rather than…
You have just purchased a share of stock for $18.85. The company is expected to pay a dividend of $0.71 per share in exactly one year. If you want to earn a 9.1% return on your investment, what price do you need if you expect to sell the share immediately after it pays the dividend? The price one year from now should be $. (Round to the nearest cent.) C
You have just purchased a share of stock for $20.29.The company is expected to pay a dividend of $0.52 per share in exactly one year. If you want to earn a 9.1% return on your investment, what price do you need if you expect to sell the share immediately after it pays the dividend? The price one year from now should be $_______.(Round to the nearest cent.)