The chairman of Heller Industries told a meeting of financial analysts that he expects the firm’s earnings and dividends to double over the next 6 years. The firm’s current (that is, as of year 0) earnings and dividends per share are $9 and $3, respectively. Use Table I and Table II to answer the questions. Estimate the compound annual dividend growth rate over the 6-year period. Round FVIF value in intermediate calculation to three decimal places. Round your answer to the nearest whole number. % Forecast Heller’s earnings and dividends per share for each of the next 6 years, assuming that they grow at the rate determined in Part a. Use the growth rate rounded to the nearest whole percent. Round your answers to three decimal places. Year Dividend EPS 1 $ $ 2 $ $ 3 $ $ 4 $ $ 5 $ $ 6 $ $ Based on the constant growth dividend valuation model, determine the current value of a share of Heller Industries common stock to an investor who requires a 17 percent rate of return. Do not round intermediate calculations. Round your answer to the nearest cent. $
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.
The chairman of Heller Industries told a meeting of financial analysts that he expects the firm’s earnings and dividends to double over the next 6 years. The firm’s current (that is, as of year 0) earnings and dividends per share are $9 and $3, respectively. Use Table I and Table II to answer the questions.
- Estimate the compound annual
dividend growth rate over the 6-year period. Round FVIF value in intermediate calculation to three decimal places. Round your answer to the nearest whole number.
% Forecast Heller’s earnings and dividends per share for each of the next 6 years, assuming that they grow at the rate determined in Part a. Use the growth rate rounded to the nearest whole percent. Round your answers to three decimal places.
Year Dividend EPS 1 $ $ 2 $ $ 3 $ $ 4 $ $ 5 $ $ 6 $ $ - Based on the constant growth dividend valuation model, determine the current value of a share of Heller Industries common stock to an investor who requires a 17 percent
rate of return . Do not round intermediate calculations. Round your answer to the nearest cent.
$ - The stock price calculated in part c might not represent an accurate valuation to an investor with a 17 percent required rate of return because the growth rate will (increase, decrease, stay the same).
- Determine the current value of a share of Heller Industries common stock to an investor (with a 17 percent required rate of return) who plans to hold it for 6 years, assuming that earnings and dividends per share grow at the rate determined in part a for the next 6 years and then at 5 percent thereafter. Do not round intermediate calculations. Round your answer to the nearest cent.
$
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
