Estimating growth ratesIt is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach.In general, there are three available methods to generate such an estimate:Carry forward a historical realized growth rate, and apply it to the future.• Locate and apply an expected future growth rate prepared and published by security analysts.• Use the retention growth model.Suppose Pierce is currently distributing 55% of its earnings in the form of cash dividends. It has also historically generated an average return onequity (ROE) of 12%. Pierce's estimated growth rate is%.

The growth rate is calculated using retention growth model equation belowThe retention rate is…

Suppose Pierce is currently distributing 55% of its earnings in the form of cash dividends. It has also historically generated an average return on equity (ROE) of 12%. Pierce's estimated growth rate is %.

Suppose Pierce is currently distributing 55% of its earnings in the form of cash dividends. It has also historically generated an average return on equity (ROE) of 12%. Pierce's estimated growth rate is %.

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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The most recent dividend paid by Altier Corporation was $3.25. That dividend is expected to grow by 8% this year, and 7% in year two. Beginning in year three, the dividend is expected to grow at a constant rate of 5%. With a 12% required return, what is a share of this company's common stock worth today?
Abbott, Inc., is expected to maintain a constant 2% annual growth rate in its dividends, indefinitely. If the company has just paid $1.5 annual dividend and its current price is $62 per share, what comes closest to the required return on the company's stock? 0000 7.5% 4.5% 6% 3.5%
Company has expected earnings of $4.8 per share for next year. The firm's ROE is 16%, and its earnings retention ratio is 55%. If the firm's market capitalization rate is 12%, what is the present value of its growth opportunities?
Assume Highline Company has just paid an annual dividend of $1.04. 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 5.5% per year. If Highline's equity cost of capital is 8.1% 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 $. (Roun to the nearest cent.) Assume Highline Company has just paid an annual dividend of $1.04. 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 5.5% per year. If Highline's equity cost of capital is 8.1% 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 $…
Arts and Crafts, Inc., will pay a dividend of $ 3.97 per share in 1 year. It sells at $ 90.00 a share, and has an expected return of 14.24 percent. What must be the expected growth rate of the company's dividends?
I want the Answer
Lawrence Industries' most recent annual dividend was $2.01 per share (D0=$2.01), and the firm's required return is 14%. Find the market value of Lawrence's shares when dividends are expected to grow at 8% annually for 3 years, followed by a 7% constant annual growth rate in years 4 to infinity.
Assume Highline Company has just paid an annual dividend of $1.04. Analysts are predicting an 11.5% 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 4.8% per year. If Highline's equity cost of capital is 7.8% 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.) ...
Seagate Technology is a global leader in data storage solutions and a high-yield dividend payer. From 2015 through 2019,Seagate paid the following per-share dividends: Year Dividend per share 2019 $2.54 2018 2.21 2017 1.81 2016 1.22 2015 1.48 Assume that the historical annual growth rate of Seagate dividends is an accurate estimate of the future constant annual dividend growth rate. Use a 22% required rate of return to find the value of Seagate's stock immediately after it paid its 2019 dividend of $2.54. The value of Seagate's stock is $
QuickRunners Co. is currently selling for $50.00 per share. The company expects to pay a dividend of $3.50 per share in a year. For the remainder of the company’s life, dividends are expected to grow at a constant rate, and investors are expected to require a 9% return to invest in QuickRunners Co. stock. What is the dividend growth rate using the constant growth model
Tyler Enterprises's stock is currently selling for $45.56 per share, and the firm expects its per-share dividend to be $2.35 in one year. Analysts project the firm's growth rate to be constant at 7.27%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approach, what is Tyler's cost of internal equity? O 12.43% 15.54% O 11.81% 13.05% Estimating growth rates It is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach. In general, there are three available methods to generate such an estimate: • Carry forward a historical realized growth rate, and apply it to the future. • Locate and apply an expected future growth rate prepared and published by security analysts. • Use the retention growth model. Suppose Tyler is currently distributing 70% of its earnings in the form of cash dividends. It has also historically generated an average return on equity (ROE) of 8%.…

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