The Canning Company has been hit hard due to increased competition. The company's analysts predict that earnings (and dividends) will decline at a rate of 5% annually into the foreseeable future. Assume that ks = 11% and D0 = $2.00. What will be the price of the company's stock in three years?

The Canning Company has been hit hard due to increased competition. The company's analysts predict that earnings (and dividends) will decline at a rate of 5% annually into the foreseeable future. Assume that ks = 11% and D0 = $2.00. What will be the price of the company's stock in three years?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 11P: Brushy Mountain Mining Companys coal reserves are being depleted, so its sales are falling. Also,...

See similar textbooks

Related questions

Q: The Mini-DV Tape Production Company is facing decreased sales due to the continual trend toward the…

A: The portion of the earnings per share that is given to the shareholder is termed as the dividend.

Q: Brushy Mountain Mining Company's coal reserves are being depleted, so its sales are falling. Also,…

A: To calculate the stock price we will use the following formula: Stock price (P0) =D1÷(r-g) where D1…

Q: Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because…

A: Value of stock is calculated using following equation Value of stock = D0×(1+g)/(rs-g) Where, D0 is…

Q: Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because…

A: The formula to calculate stock value is shown below:

Q: What is the current price of the common stock?

A: Horizon value is also called as terminal value of the stock. It is the present value of stock when…

Q: Your task is to find the value of the stock given the following forecasts about the dividends: The…

A: Terminal value is computed as follows:-Terminal value = whereD = dividendg = growth ratek = Required…

Q: General Importers announced that it will pay a dividend of $2.00 per share one year from today.…

A: The current price of a stock is calculated by discounting all the future dividends at the present…

Q: Blossom, Inc., management expects to pay no dividends for the next six years. It has projected a…

A: given, dividend at year 7 (D7) =$3.27 growth rate (g)=5% required rate of return (r)=20%

Q: Hallo Ltd. is presently enjoying relatively high growth because of a surge in the demand for its new…

A: Current price of the common stock is calculated using the dividend discount model. For that first we…

Q: Suppose a firm is expected to increase dividends by 20% in one year and by 15% in two years. After…

A: The price of the stock refers to the price at which the stock is trading in the stock market. Stock…

Q: Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its…

A: Dividend discount model refers to a stock valuation model. This model uses present value of future…

Q: Show Boat Dinner Theatres has paid annual dividends of $0.22, $0.38, and $0.50 a share over the past…

A: This question is based on the dividend discount model.. This model is an important model often used…

Q: The company’s analysts predict that earnings and dividends will decline at a rate constant rate of…

A: Decline rate (S) = 5% Next year dividend (D1) = P 2.00 Dividend after 4 years (D4) = D1*(1-S)3…

Q: The Cristiano Book Production Company has been hit hard due to increased competition. The company’s…

A: Growth = - 5% Ke = 11% Do = $2 Price after 3 years = D0 × (1+growth rate)^time(Ke- growth rate)…

Q: Whizcom Inc. is expected to pay a dividend of $1 next period. Dividends are expected to grow at 2%…

A: i) Computation of Current Stock Price Growth rate = 2% Expected Dividend = 1 Required rate = 12%…

Q: Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because…

A: We can use the dividend discount model here. As per the dividend discount mode; the intrinsic value…

Q: The MM Company has fallen on hard times. Its management expects to pay no dividends for the next 2…

A: A stock is a financial security that is sold by a corporation to raise funds from the general…

Q: Church line, in presently enjoying relatively high growth because of a sorge in the demand for its…

A: Here,Growth rate for 4 years = 22%Growth rate after 4 years = 0%Last dividend (D0) = $1.25Beta =…

Q: Blue Co. has been in the difficult times due to pandemic. The company's analysts predict that…

A: Dividend after year 1 = P 2 Decline rate = 5% Dividend after year 4 = Dividend after year…

Q: Suppose Kaspi Bank is trading share at 25$ today. The company pays dividend of 0.25. The analysts…

A: An expected return is referred as the profit or loss, where an investor used to anticipate on…

Q: Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its…

A: Expected rate of return = Risk free rate + (Beta*market risk premium) Expected rate of return =3% +…

Q: The earnings of Eastern Corp. are expected to grow at an annual rate of 12% over the next 5 years…

A: Here, Recent Dividend Paid is $0.36 Growth Rate for first 5 years is 12% Growth Rate after 5 years…

Q: Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because…

A: The question is based on the concept of Financial Management.

Q: Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because…

A: The share price is the current market price of the share. It is the price of the share at any…

Q: Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because…

A: The Gordon model is a model that helps to compute the price of the stock with the help of annual…

Question

The Canning Company has been hit hard due to increased competition. The company's analysts predict that earnings (and dividends) will decline at a rate of 5% annually into the foreseeable future. Assume that ks = 11% and D0 = $2.00. What will be the price of the company's stock in three years?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

The Cristiano Book Production Company has been hit hard due to increased competition. The company’s analysts predict that earnings (and dividends) will decline at a rate of 5 percent annually forever. Assume that ke = 11 percent and D0 = $2.00. What will be the price of the company’s stock three years from now?
General Importers announced that it will pay a dividend of $2.00 per share one year from today. After that, the company expects a slowdown in its business and will not pay a dividend for the next 6 years. Then, 8 years from today, the company will begin paying an annual dividend of $1.00 forever. The required return is 10.00 percent. What is the price of the stock today?
Your task is to find the value of the stock given the following forecasts about the dividends: The company has just paid out 8EUR per share as dividends to its investors. For the next four years, the forecasted dividends are also 8EUR each year. However, after four years, the dividends are expected to exhibit a negative growth (e.g. decline) by 4% per year. The required return, given the level of risk, from an investment into stock is 14%. Find the value of stock. If the current stock price is 60 euros, would you recommend buying this stock? Why?
Blue Co. has been in the difficult times due to pandemic. The company's analysts predict that earnings and dividends will decline at a rate constant rate of 5% annually. Assume that cost of stock is 11% and dividend to be declared one year from now is P2.00. What will be the price of the company's stock three years from today? *
The company’s analysts predict that earnings and dividends will decline at a rate constant rate of 5% annually. Assume that cost of stock is 11% and dividend to be declared one year from now is P2.00. What will be the price of the company’s stock three years from today?
The earnings of Eastern Corp. are expected to grow at an annual rate of 12% over the next 5 years and then slow to a constant rate of 8% per year. The company currently pays a dividend of $0.36 per share. What is the value of the company’s stock to an investor who requires a 14% rate of return? If the stock has a market price of $15, do you buy it ?
Blossom, Inc., management expects to pay no dividends for the next six years. It has projected a growth rate of 25 percent for the next seven years. After seven years, the firm will grow at a constant rate of 5 percent. Its first dividend, to be paid in year 7, will be $3.27. If the required rate of return is 20 percent, what is the stock worth today? (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.20.)Excel Template(Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you’ve been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.) Worth of stock $Type your answer here
Analysts believe that Manufactured Earnings is a “darling” of Wall Street analysts. Its current market price is $27 per share, and its book value is $11 per share. Analysts forecast that the firm’s book value will grow by 12.5 percent per year indefinitely, and the cost of equity is 17percent. Given these facts, what is the market’s expectation of the firm’s long-term average ROE?
Roma Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 22% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company’s last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?
Whizcom Inc. is expected to pay a dividend of $1 next period. Dividends are expected to grow at 2% per year and the investors require a return of 12%. i) Compute the current stock price for Whizcom Inc.ii) What would be the likely stock price in year 5?iii) What would be per annum rate of return implied by a change in prices from time 0 to time 5?
Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 9% per year. If D0 = $6 and rs = 18%, what is the value of Maxwell Mining's stock? Round your answer to the nearest cent.
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?