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 $3.5 and $1.75, 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 16 percent rate of return. Do not round intermediate calculations. Round your answer to the nearest cent. $
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 $3.5 and $1.75, 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 16 percent rate of return. Do not round intermediate calculations. Round your answer to the nearest cent. $
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
Related questions
Concept explainers
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.
Topic Video
Question
100%
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 $3.5 and $1.75, 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 16 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 16 percent required rate of return because the growth rate will -increase, decrease, or always stay the same.
- Determine the current value of a share of Heller Industries common stock to an investor (with a 16 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.
$
Transcribed Image Text:TABLE II
Present Value Interest Factor (PVIF) (S1 at i % per period for n periods):
PVIF =
(1+
PV = FV,(PVIF,a)
Period, n
1%
1.000
3%
1.000 1.000
0.980 0.971
2%
4%
1.000
0.962
5%
1.000
6%
7%
8%
9%
10%
1.000
11%
1.000
12%
13%
1.000
0.943
1.000
0.935
1.000
0.926
0.857
0.794
1.000
0.917
1.000
0.893
0.797
0.712
0.636
1.000
0.885
0.990
0.980
0.971
0.952
0.909
0.901
0.961 0.943
0.942 0.915
0.907
0.864
0.812
0.731
0.659
0.593
0.783
0.693
0.613
0.543
0925
0.890
0.873
0.816
0.842
0.826
0.751
3
0.889
0.855
0.772
0.708
0.650
0.596
0.47
0.502
0.840
0.924 0.889
0.906 0.863
0.823
0.784
0.746
4
0.792
0.961
0.951
0.763
0.735
0.681
0.683
0.822
0.790
0.760
0.731
0.703
0.676
0.650
0.747
0.713
0.666
0.623
0.621
0.564
0.513
0567
0.507
0.452
0.888 0.838
0.871 0.813
0.853 0.789
0.837 0.766
0.705
0.665
0.627
0.592
0.58
0.527
0.497
0.469
0.442
0.417
0.535
0.482
0.434
0.480
0.425
0.942
0.630
0.933
0.923
0.914
O.583
0.540
0.711
0.677
0.582
0.544
0.467
0.404
0.376
033
0.295
0.261
0.645
10
11
0.508
0.475
0.500
0.463
0.460
0.422
0.424
0.386
0.350
0.391
0.352
0.317
0.361
0.322
0.905
0.820 0.744
0.804 0.722
0.614
0.896
0.887
0.585
0.557
0.429
0.397
0.388
0.287
0.257
0.229
0.205
0.183
0.788 0.701
0.773 0.681
0.286
0.258
0.232
0.209
0.231
0.204
0.181
12
13
0.625
0.601
0.444
0.356
0.319
0.879
0.530
0.758 0.661
0.743 0.642
0577
0.555
0534
0.415
0.388
0.362
0.368
0.340
0.326
0.299
0.290
0.263
0.239
0.505
0.481
14
0.870
15
0.315
0.292
0275
0.252
0.160
0.141
0.861
0.218
0.198
0.180
0.164
0.188
0.170
0.153
0.138
0.124
0.853
16
17
0.728 0.623
0.714 0.605
0.700 0.587
0.458
0.436
0.416
0.394
0.371
0.339
0.163
0.844
0513
0.494
0.317
0.270
0.250
0.231
0.212
0.296
0.276
0.258
0.197
0.146
0.130
0.116
0.104
0.066
0.125
0.111
0.098
0.087
18
19
0.836
0.350
0.331
0.828
0.820
0.686 0.570
0.673 0554
0.622 0.492
0.396
0.377
0310
0232
0.215
0.194
0.178
0.126
0.475
20
24
0.456
0.312
0.149
0.788
0.780
0.390
0.375
0.308
0.295
0.231
0.142
0.247
0.233
0.174
0.158
0.146
0.102
0.092
0.057
0.082
0.074
0.044
0.053
0.047
25
30
0.610 0.478
0.552 0.412
0.184
0.116
0.059
0.742
0.672
0.131
0.067
0.034
0.099
0.046
0.075
0.032
0.026
0.008
0.033
0.453 0.307
0.372 0.228
0.305 0.170
0.208
0.141
0.097
0.054
0.030
40
0.022
0.015
0.011
50
0.608
0.550
0.087
0.021
0.010
0013
0.006
0.009
0.003
0.005
0.002
0.003
0.001
0.002
0.001
60
0.095
0.054
0.017
Period n
17%
24%
14%
15%
16%
1.000
0.862
18%
19%
20%
1.000
0.833
28%
1.000
0.781
32%
36%
40%
1.000
0.877
1.000
0.870
1.000
1.000
0.847
1.000
0.840
1.000
1.000
1.000
0.735
1.000
0.714
0.806
0.758
0.769
0.675
0.855
0.731
0.624
0.756
0.658
0.572
0.497
0.743
0.641
0.718
0.706
0.694
0.579
0.650
0.524
0.610
0.477
0574
0.41
0.398
0.510
0.364
0.435
0.592
0.519
0.609
0.516
0.437
0.593
0.499
0.419
0552
0.534
0.482
0.402
0.423
0.341
0.373
0.291
0.329
0.250
0292
0215
0.260
0.186
0.476
0.456
0.400
0.432
0.376
0410
0.354
0.456
0.390
0.333
0.158
0.116
0.370
0.314
0.266
0.225
0.191
0352
0.296
0.335
0.279
0.275
0.222
0227
0.178
0.189
0.143
0.133
0.095
0.068
0.048
0.351
0.308
0.327
0.284
0.305
0.263
0.285
0.243
0.208
0.178
0.152
0.130
0.249
0.209
0.233
0.194
0.179
0.144
0.139
0.108
0.085
0.063
0.108
0.085
0.066
0.082
0.062
0.047
0227
0.195
0.168
0.176
0.148
0.124
0.104
0.046
0.034
0.025
0.018
0.270
0.237
0.247
0.162
0.135
0.116
0.094
0.035
0.025
11
0.215
0.187
0.162
0.137
0.116
0.099
12
13
0.208
0.112
0.093
0.076
0.061
0.052
0.040
0.036
0.018
0.013
14
15
0.182
0.160
0.140
0.163
0.141
0.123
0.145
0.125
0.108
0.027
0.021
0.016
0.111
0.088
0.074
0.078
0.065
0.049
0.040
0.032
0.025
0.014
0.010
0.009
0.006
0.095
0.084
0.071
16
17
0.123
0.108
0.107
0.093
0.093
0.080
0.081
0.069
0.062
0.052
0.054
0.045
0.032
0.019
0.015
0.012
0.009
0.007
0.005
0.003
0.005
0.060
0.051
0.026
0.021
0.017
0.044
0.037
0.031
0.015
18
19
0.095
0.081
0.069
0.060
0.059
0.051
0.038
0.031
0.012
0.009
0.007
0.004
0.002
20
24
0.083
0.073
0.043
0.070
0.061
0.035
0.051
0.028
0.043
0.023
0.043
0.037
0.019
0.026
0.013
0.014
0.006
0.007
0.003
0.005
0.004
0.001
0.003
0.002
0.001
0.002
0.001
0.000
0.000
25
30
0.038
0.020
0.030
0.015
0.024
0.012
0.020
0.009
0.016
0.007
0.001
0.013
0.005
0.010
0.004
0.005
0.002
0.002
0.001
0.001
0.000
0.000
40
50
0.005
0.001
0.004
0.001
0.003
0.001
0.001
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.002
0.001
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
60
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
23
4507
0060123
Transcribed Image Text:TABLE I
Future Value Interest Factor (FVIF) (S1 at i % per period for n periods): FVIF = (1 + i)": FV, = PV, (FVIF¿»)
%3!
Period, n 1%
3%
1.000 1.000
1.020 1.030
2%
4%
1.000
1.040
5%
1.000
1.050
6%
1.000
1.060
1.124
1.191
7%
1.000
1.070
8%
9%
1.000
1.090
10%
11%
12%
13%
1.000
1.010
1.000
1.080
1.000
1.100
1.000
1.110
1.000
1.000
1.130
1.120
1.254
1.103
1.158
1.216
1.276
2
1.020
1.040 1.061
1.082
1.125
1.170
1.217
1.145
1.166
1.260
1.188
1.210
1.232
1.368
1518
1.685
1.277
1.030
1.061
1.331
1.093
1.082 1.126
1.104 1.159
1.225
1.443
1.630
1.842
2.082
2.353
2658
3.004
1.295
1.412
1.405
1.262
1.338
4.
1.041
1.051
1.311
1.360
1.469
1.464
1.611
1.574
1.762
5
1.403
1.501
1.606
1539
1.062
1.072
1.083
1.094
1.126 1.194
1.149
1.265
1316
1.340
1.407
1.419
1.587
1.714
1.677
1.772
1.949
1.870
2.076
1.974
7
1.504
1230
1.172 1.267
1.828
1.993
2.211
2.476
1.477
1.551
2.305
2558
1.369
1.594
1.718
1.851
1.999
2.144
9
1.195
1.305
1.423
1.689
1.838
2.172
2.358
2.773
1.791
1.898
2.012
10
1.105
1219 1344
1.480
1.629
1.967
2.159
2.367
2.594
2.839
3.106
3.395
11
12
1.116
1.127
1.138
1.149
1.243 1.384
1.268 1.426
1.539
1.601
1.710
1.796
1.886
2.105
2.252
2410
2.332
2580
2.853
3.138
3.152
3.479
3.836
4.335
2518
2.720
2.813
3.066
3.342
3.498
3,883
3.896
4.363
13
1.294
1319 1513
1.469
1.665
1.732
2.133
3.452
3.797
4.898
1.980
2.261
2.397
2.540
14
2.579
2.937
4.310
4.887
5.535
1.346 1558
1373
1.605
1.400
1.653
1.428 1.702
15
16
4.785
5.311
1.161
1.173
1.184
1.196
1.208
1.220
1.270
1.282
1.801
1.873
2.079
2.183
2.292
2407
2527
2.653
2.759
2.952
3.159
3.380
3.617
3.870
3.172
3.426
3.700
3.996
4316
4.661
3.642
3.970
4.328
4.717
4.177
4.595
5.474
6.130
6.254
7.067
17
18
2.693
2.854
1.948
5.054
5.560
5.895
6544
6.866
7.690
8.613
9.646
7.986
2.026
2.107
2.191
9,024
10.197
11.523
19
1.457 1.754
1.486 1.806
3.026
3.207
5.142
5.604
6.116
6.728
7.263
8.062
20
15.179
17.000
1.608 2.033
24
25
2.563
2.666
3.225
3.386
4322
7.040
4.049
4.292
5.072
5.427
6.341
6.848
7.911
8.623
9.850
12.239
13.585
18.790
1.641
2.094
10.835
17.449
21.231
39.116
30
1.348
1.489
2.427
2.208 3.262
1.811
3.243
4.801
5.743
7.612
10.063
13.268
31.409
74.358
176.031
22.892
29.960
21.725
132.782
450.736
524.057 897.597 1,530.05
40
10.286 14.974
45.259
65.001
93.051
2.692 4384
50
60
1.645
1.817
7.107 11.467 18.420 29.457
3.281 5.892 10.520 18.679 32.988 57.946 101.257
46.902
117.391
184.565 289.002
304.482
Period,n
40%
14%
1.000
1.140
1.300
1.482
1.689
1.925
15%
1.000
1.150
16%
17%
18%
19%
20%
24%
28%
1.000
1.280
32%
36%
1.000
1.000
1.000
1.000
1.190
1.000
1.000
1.240
1.000
1.000
1.360
1.000
1
1.160
1.346
1.561
1.170
1.369
1.602
1.874
2.192
2565
3.001
3.511
4.108
1.180
1392
1.643
1.200
1.440
1.728
2.074
2.488
1.320
1.742
2.300
1.400
1.960
1322
1.416
1.538
1.638
1.850
1.521
1.749
1.907
2364
2.932
2.744
3.842
5.378
1.685
2.067
2.684
3.436
2515
1.811
2.100
1.939
2.288
2.005
2.386
3.036
4.007
3.421
4.653
2.011
2.840
3379
4.021
6.
2.195
2.502
2313
2.660
2436
2.700
3.185
3.759
4.435
2.986
3.583
3.635
4398
5.290
6.983
9217
6.328
7.530
10.541
2853
3.252
2.826
3.278
3.803
4.508
5.590
5.629
7206
8605
11.703
15.917
3.059
4.300
5.160
14.758
20.661
6.931
8.594
10.657
3.518
4.785
9.223
12.166
10
11
3.707
4.226
4.046
4.652
4.411
5.117
4.807
5.624
5.234
5.695
6.777
6.192
7.430
11.806
15.112
16.060
21.199
21.647
29.439
28.925
40.496
6.176
7.288
8.599
12
4.818
5.492
6.261
7.138
8.137
9.276
10.575
12.056
13.743
23.212
5350
6.153
5.926
6.886
6.580
7.699
8.064
9.596
8.916
10.699
13.215
19343
27.983
40.037
56.694
13
16.386
24.759
36.937
54.451
79.372
14
15
12839
15.407
7.076
7.988
9.266
9.007
10.539
12.330
14.426
10.147
11.974
11.420
13.590
20.319
25.196
31.961
40.565
51.923
66.461 112.139
48.757
64.359
74.053 111.120
100.712 155.568
8.137
9.358
10.761
12375
14.232
16.367
28.625
16
17
10.748
12.468
136.969 217.795
186.278 304.914
14.129
16.172
19.244
22.901
27.252
18.488
22.186
31.243
84.954
38.741
16.672
19.673
85.071 148.023
253.338 426.879
18
19
14.463
16.879
26.623
31.948
48.039
59.568
16.777
19.748
23.214
108.890 195.391
344.540 597.630
20
24
19.461
23.106
27.393
53.109
32429
65.032
38.338
79.497
73.864
174.631
139380 257.916
468.574 836.683
43.297
35.236
40.874
374.144 783.023 1,603.00 3,214.20
478.905 1,033.59 2,180.08 4,499.88
634.820 1,645.50 4142.07 10,143.0 24,201.4
25
26.462
32919
50.658
62.669
77388
95.396
216.542
30
143.371 184.675
533.869 750.378 1,051.67
700.233 1,083.66 1,670.70 2,566.22 3,927.36 5,988.91 9,100.44 46,890.4 229,350
50.950
85.850
267864 378.721
111.065
237.376
1,469.77
66.212
40
188.884
5,455.91 19,426.7 66,520.8 219,562 700,038
50
60 2,595.92 4,384.00 7,370.20 12,335.4 20,555.1 34,105.0 56,3475 402,996
These interest factors exceed 1.000.000
2344
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!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
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.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education