**Problem 7-8: Dividend Discount Model (LO2)**Rework Table 7.4 for horizon years 1, 2, 3, and 10, assuming that investors expect the dividend and the stock price to increase at only 6% a year and that each investor requires the same 12% expected return. The company will pay a dividend of $6.60 at the end of the first year. (*Do not round intermediate calculations. Round your answers to 2 decimal places.*)| Horizon (years) | PV (Dividends) | PV (Terminal Price) | Value per Share ||-----------------|----------------|---------------------|-----------------|| 1 | | | || 2 | | | || 3 | | | || 10 | | | |This table outlines the expected present values (PV) for dividends, terminal price, and the resulting value per share over different time horizons, given the specified growth and return rates. **Table 7.4: Value of Blue Skies**This table presents data on the projected value of a company, Blue Skies, over different time horizons. It breaks down the present value of dividends and the present value of the terminal price to determine the total value per share. | Horizon (years) | PV (dividends) | PV (terminal price) | Value per Share ||-----------------|----------------|---------------------|-----------------|| 1 | $2.68 | $72.32 | $75 || 2 | 5.26 | 69.74 | 75 || 3 | 7.75 | 67.25 | 75 || 10 | 22.87 | 52.13 | 75 || 20 | 38.76 | 36.24 | 75 || 30 | 49.81 | 25.19 | 75 || 50 | 62.83 | 12.17 | 75 || 100 | 73.02 | 1.98 | 75 |- **Horizon (years):** The length of time over which the value is projected.- **PV (dividends):** Present value of dividends for the given horizon.- **PV (terminal price):** Present value of Blue Skies' terminal price.- **Value per Share:** The total estimated value per share remains consistent at $75 across all time horizons.This table is useful in evaluating long-term investment potential by assessing how dividends and resale value contribute to the overall share value.

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Problem 7-8 Dividend Discount Model (LO2) Rework Table 7.4 for horizon years 1, 2, 3, and 10, assuming that investors expect the dividend and the stock price to increase at only 6% a year and that each investor requires the same 12% expected return. The company will pay a dividend of $6.60 at the end of the first year. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Horizon PV PV (Terminal Price) Value per Share (years) (Dividends) 1 2 3 10

Problem 7-8 Dividend Discount Model (LO2) Rework Table 7.4 for horizon years 1, 2, 3, and 10, assuming that investors expect the dividend and the stock price to increase at only 6% a year and that each investor requires the same 12% expected return. The company will pay a dividend of $6.60 at the end of the first year. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Horizon PV PV (Terminal Price) Value per Share (years) (Dividends) 1 2 3 10

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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Problem 10.17 (calmulation of g and EPS) Sidman Buduct's common stock currently sells for $41 a share. The firm is expected to earn $4,10 per share this year and to dividend of $2.60, and it finances only with pay a year-end common equity. a) If investors require a 10%. return, what is the expected growth rate? Round your answer to places. two decimal % 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? (Hintis = (1-Payout ratio) ROE). Round to the nearest cent. your criswer $ share - per
9
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Problem 7-24 Negative Growth [LO 1] You've collected the following information from your favorite financial website. Dividend PE Yield 2.6 3.8 52-Week Price LO 10.43 Acevedo .36 33.42 69.50 14.12 Manta Energy .97 20.74 Winter Sports .32 Hi 77.40 55.81 130.93 50.41 35.00 Stock (Dividend) Georgette, Incorporated 1.54 YBM 2.00 Answer is complete but not entirely correct. Required return 4,40 2.2 6.2 1.5 Ratio 6 10 10 6 28 Close Price 13.90 40.43 88.97 15.60 77 Net Change -.24 -.01 According to your research, the growth rate in dividends for Manta Energy for the previous 10 years has been negative 10 percent. If investors feel this growth rate will continue, what is the required return for the stock? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. 3.07 -.26 .18
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