Problem 8-20 Spreadsheet Problem: P/E Model and Cash Flow Valuation (LG8-5, LG8-7)Suppose that a firm's recent earnings per share and dividend per share are $3.15 and $2.60, respectively. Both are expected to growat 6 percent. However, the firm's current P/E ratio of 27 seems high for this growth rate. The P/E ratio is expected to fall to 23 withinfive years.Compute the dividends over the next five years.Compute the value of this stock price in five years.Calculate the present value of these cash flows using an 8 percent discount rate.Complete this question by entering your answers in the tabs below.Dividends Stock pricePresent valueCompute the dividends over the next five years.Note: Do not round intermediate calculations. Round your answers to 3 decimal places.YearsFirst yearSecond yearThird yearFourth yearFifth yearDividendsDividendsStock price

Earnings per share = $3.15Dividends per share = $2.60Growth rate = 6%Expected PE ratio fall within…

Answered: Suppose that a firm's recent earnings…

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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Show Detailed Steps When Solving The Following Question: Gordon Growth Company is expected to pay a dividend of $4 next period, and dividends are expected to grow at 6% per year. The required return is 16%. What is the current price? What is the price expected to be in year 4?
YZ Inc. is experiencing rapid growth. Earnings and dividends are expected to grow at a rate of 17% during the next 2 years, at 15% the following year, and at a constant rate of 7% during Year 4 and thereafter. Its last dividend was $1.55, and its required rate of return is 12%. a. Calculate the value of the stock today. b. Calculate P1 and P2 (Prices for Year 1 and Year 2). c. Calculate the dividend and capital gains yields for Years 1, 2, and 3.
b) Recent dividend distributed RM1. Suppose a firm is expected to increase dividends by 20% in one year and by 15% in two years. After that, dividends will increase at a rate of 5% per year indefinitely. If the required return is 20%, calculate the stock.
The FI Corporation's dividends per share are expected to grow indefinitely by 6% per year. a. If this year's year-end dividend is $8.00 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM? Current stock price b. If the expected earnings per share are $16.00, what is the implied value of the ROE on future investment opportunities? (Round your answer to 2 decimal places.) Value of ROE c. How much is the market paying per share for growth opportunities (i.e., for an ROE on future investments that exceeds the market capitalization rate)? (Round your answer to 2 decimal places.) Amount % per share
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PerfectlySoft Corp. is experiencing rapid growth. Dividends are expected to grow at 26 percent per year during the next three years, 15 percent over the following year, and then 4 percent per year thereafter indefinitely. The required return on this stock is 8.18 percent, and the stock currently sells for $79.91 per share. What is the projected dividend (in $) for the coming year? Answer to two decimals, carry intermediate calcs. to four decimals.
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Zapata Corporation will pay dividends of USD 5.00, USD 6.00, and USD 7.00 in the next three years. Thereafter, the company expects its dividend growth rate to be a constant 10 percent. If the required rate of return is 15 percent, what is the current market price of Zapata stock?
Suppose the dividends for the Seger Corporation over the past six years were $1.40, $1.48, $1.57, $1.65, $1.75, and $1.80, respectively. Assume that the historical (arithmetic) average growth rates will remain the same for 2022. Compute the expected share price at the end of 2022 using the perpetual growth method. Assume the market risk premlum is 11.7 percent, Treasury bills yield 5.9 percent, and the projected beta of the firm is 0.88. Note: Do not round Intermediate calculations. Round your answer to 2 decimal places. Answer is complete but not entirely correct. Share price S 1.80
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