The Link Resport & Spa Company has 75,000 shares of stock outstanding. The company is expected to have total earnings next year of $500,000. The company plans to reinvest $275,000 in projects earning an (equity) return of 15%, and to return the remainder of its earnings to shareholders in the form of dividends or stock repurchases. The first dividend or repurchse payments will be made exactly one year from today. In all future years, the market expects the company's reinvestment rate and the return on reinvested earnings to remain constant. The required return on equity is 12%. What is the value of the firm today, if it 1.) uses the remaining $225,000 to pay dividends, and will continue this payout policy (as a percent of earnings) in future years? 2) uses 40% of its annual payout to repurchase stock, and uses the remainder to pay divdends (and will continue this policy in future years)? Assume that the firm will use the remaining $225,000 to pay dividends (and will continue this payout policy in future years.) For each of the next three years (t=1, t=2, and t=3) identify: 1) the total divdend payment and the dividend per share 2) the stock price immediately after the dividend payment 3) the annual holding period earned by shareholders Assume that the firm will use 40% of its annual payout to repurchase stock, and will use the remainder to pay dividends (and will continue this policy in future years). For each of the next three years (t=1, t=2, t=3), identify: 1) the number of shares repurchased, and the number of outstanding shares 2) the stock price immediately after the share repurchase and the dividend payment 3) the total dividend payment and the dividend per share 4) the annual holding period return earned by shareholders who 1 - do not sell ( and receive that year's dividend) 2 - sell their shares back to the company (and do not receive that year's dividend
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 Link Resport & Spa Company has 75,000 shares of stock outstanding. The company is expected to have total earnings next year of $500,000. The company plans to reinvest $275,000 in projects earning an (equity) return of 15%, and to return the remainder of its earnings to shareholders in the form of dividends or stock repurchases. The first dividend or repurchse payments will be made exactly one year from today. In all future years, the market expects the company's reinvestment
What is the value of the firm today, if it
1.) uses the remaining $225,000 to pay dividends, and will continue this payout policy (as a percent of earnings) in future years?
2) uses 40% of its annual payout to repurchase stock, and uses the remainder to pay divdends (and will continue this policy in future years)?
Assume that the firm will use the remaining $225,000 to pay dividends (and will continue this payout policy in future years.) For each of the next three years (t=1, t=2, and t=3) identify:
1) the total divdend payment and the dividend per share
2) the stock price immediately after the dividend payment
3) the annual holding period earned by shareholders
Assume that the firm will use 40% of its annual payout to repurchase stock, and will use the remainder to pay dividends (and will continue this policy in future years). For each of the next three years (t=1, t=2, t=3), identify:
1) the number of shares repurchased, and the number of outstanding shares
2) the stock price immediately after the share repurchase and the dividend payment
3) the total dividend payment and the dividend per share
4) the annual holding period return earned by shareholders who
1 - do not sell ( and receive that year's dividend)
2 - sell their shares back to the company (and do not receive that year's dividend)
Please note that we have solved the first question. Please resubmit the other questions separately.
Total shares = 75,000
Next Year earnings = $500,000
Re-investment (Retention)= $275,000
Dividend = $225,000
Return on Equity (ROE) = 15%
Expected rate of return = 12%
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