Need correct answer for this general account query Questions Of General AccountMicrosoft Corp. will pay a dividend of $2.04 per share next year.Investors anticipate that the annual dividends will grow by 2% per yearforever, and they require a 12% discount rate.Calculate the value of the stock.

The Gordon Growth Model, which is frequently used to assess equities with dividends growing at a…

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EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 12P

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CALCULATING THE WACC Here is the condensed 2019 balance sheet for Skye Computer Company (in thousands of dollars): Skyes earnings per share last year were 3.20. The common stock sells for 55.00. last years dividend (D0) was 2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skyes preferred stock pays a dividend of 3.30 per share, and its preferred stock sells for 30.00 per share. The firms before-lax cost of debt is 10%, and its marginal tax rate is 25%. The firms currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skyes beta is 1.516. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals 1.2 million. a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. b. Now calculate the cost of common equity from retained earnings, using the CAPM method. c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r1 and rs as determined by the DCF method, and add that differential to the CAPM value for rs.) d. If Skye continues to use the same market-value capital structure, what is the firms WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock?
Consider the stock of Davidson Company that will pay an annual dividend of 2 in the coming year. The dividend is wxpected to grow at a constant rate of 5 percent permanently. The market requires a 12-percent return on the company. What is the current price of share of the stock?
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Mclver's Meals, Inc. currently pays a OMR2 annual dividend. Investors believe that dividends will grow at 20% next year, 12% annually for the two years after that, and 6% annually thereafter. Assume the required return is 10%. What is the current market price of the stock? Select one: O a. OMR69.30 O b.OMR75.20 O c. OMR66.60 O d. OMR60.80 O e. OMR54.99
NoRagrets, Inc is expected to pay a dividend in year 1 of $2 and a dividend in year 2 of $2.40. After year 2, dividends are expected to grow at the rate of 6% per year. An appropriate required return for the stock is 9%. The stock should be worth _______ today. Select one: a. $79.63 b. $73.21 c. $67.32 d. $73.37
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A common stock will pay a cash dividend of $4.25 next year. After that, the dividends are expected to increase indefinitely at 4% per year. If the discount rate is 14%, what is the PV of the stream of dividend payments? Note: Round your answer to 2 decimal places. Present Value
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Assume that you are considering purchase of common stock issued by REC Corporation. Your research has shown that the dividends are paid regularly on a semiannual schedule. The most recent (past) semiannual dividend paid was D0 = $12 per share. In the future, dividends are expected to grow at an annual rate of 4%. You have determined that your required rate of return (discount rate) for this stock would be 6.5% per year. NOTE: $12 is the amount that was paid semiannually. It does not need to be divided by two. Based on this information, answer the following: A. What are the next four upcoming dividends for this common stock (i.e., D1, D2, D3, D4)? B. Using the Discounted Cash Flow Method, what is the value of this common stock? C. Assume that the current market price of this common stock is $325 per share. At this price, what is the stock's annual expected return according to the Discounted Cash Flow Method? D. Based on your answer to part B, would you invest in…
The common stock of Dayton Repair sells for $40.39 a share. The stock is expected to pay $2.01 per share next year when the annual dividend is distributed. The company increases its dividends by 2.00 percent annually. What is the market rate of return on this stock?
The market price of a stock is $21.90 and it is expected to pay a dividend of $1.52 next year. The required rate of return is 11.04%. What is the expected growth rate of the dividend? Submit

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Questions Of General Account Microsoft Corp. will pay a dividend of $2.04 per share next year. Investors anticipate that the annual dividends will grow by 2% per year forever, and they require a 12% discount rate. Calculate the value of the stock.