Stock Values. Integrated Potato Chips paid a $2 per share dividend You expect the dividend to grow steadily at a rate of 4 percent per year. a) What is the expected dividend in each of the next 3 years? b) If the discount rate for the stock is 12 percent, at what price will the stock sell today if the price after three years is $30? c) What is the expected stock price 3 years from now if today it sells for $24? d) If you buy the stock and plan to hold it for 3 years, what payments will you receive? What is the present value of those payments? Compare your answer to (b).
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
- Stock Values. Integrated Potato Chips paid a $2 per share dividend You expect the dividend to grow steadily at a rate of 4 percent per year.
a) What is the expected dividend in each of the next 3 years?
b) If the discount rate for the stock is 12 percent, at what price will the stock sell today if the price after three years is $30?
c) What is the expected stock price 3 years from now if today it sells for $24?
d) If you buy the stock and plan to hold it for 3 years, what payments will you receive? What is the
2) The Club Auto Parts Company has just recently been organized. It is expected to experience no growth for the next 2 years as it identifies its market and acquires its inventory. However, Club will grow at an annual rate of 5% in the third and fourth years and, beginning with the fifth year, should attain a 10% growth rate which it will sustain thereafter. The last dividend paid was $0.50 per share. Club has a cost of capital of 12%. What should be the present price per share of Club common stock?
3) ABC Corporation has issued bonds for 6 years. The face
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