Term Dividends one year from now (D₁) Horizon value Intrinsic value of Portman's stock The risk-free rate (TRF) is 4.00%, the market risk premium (RPM) is 4.80%, and Portman's beta is 1.80. Assuming that the market is in equilibrium, use the information just given to complete the table. 9.15% What is the expected dividend yield for Portman's stock today? 10.30% 7.55% 9.44% Value Now let's apply the results of your calculations to the following situation: $0.54 per share (Note: Rounded to four decimal places) (Note: Rounded to two decimal places) (Note: Rounded to two decimal places) Portman has 600,000 shares outstanding, and Judy Davis, an investor, holds 9,000 shares at the current price (computed above). Suppose Portman is considering issuing 75,000 new shares at a price of $32.59 per share. If the new shares are sold to outside investors, by how much will Judy's investment in Portman Industries be diluted on a per-share basis? $0.64 per share $1.34 per share $0.70 per shar
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.
As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company’s stock.
Consider the case of Portman Industries:
Portman Industries just paid a dividend of $3.12 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 16.00% over the next year. After the next year, though, Portman’s dividend is expected to grow at a constant rate of 3.20% per year.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
