Nonconstant Dividend Growth ValuationAssume that the average firm in C&J Corporation's industry is expected to grow at a constant rate of 5% and that its dividendyield is 8%. C&J is about as risky as the average firm in the industry and just paid a dividend (Do) of $2.75. Analysts expectthat the growth rate of dividends will be 50% during the first year (90,1 = 50%) and 30% during the second year (91,2 =30%). After Year 2, dividend growth will be constant at 5%.What is the required rate of return on C&J's stock? Do not round intermediate calculations. Round your answer to the nearestwhole number.%What is the estimated intrinsic price per share? Do not round intermediate calculations. Round your answer to the nearestcent.$

Growth= 5%Dividend yield= 8%.Dividend (D0)= $2.75g0,1 = 50%g1,2 = 30%Dividend growth after year 2=…

What is the required rate of return on C&J's stock? Do not round intermediate calculations. Round your answer to the nearest whole number. % What is the estimated intrinsic price per share? Do not round intermediate calculations. Round your answer to the nearest cent. $

What is the required rate of return on C&J's stock? Do not round intermediate calculations. Round your answer to the nearest whole number. % What is the estimated intrinsic price per share? 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

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Question

Nonconstant Dividend Growth Valuation
Assume that the average firm in C&J Corporation's industry is expected to grow at a constant rate of 5% and that its dividend
yield is 8%. C&J is about as risky as the average firm in the industry and just paid a dividend (Do) of $2.75. Analysts expect
that the growth rate of dividends will be 50% during the first year (90,1 = 50%) and 30% during the second year (91,2 =
30%). After Year 2, dividend growth will be constant at 5%.
What is the required rate of return on C&J's stock? Do not round intermediate calculations. Round your answer to the nearest
whole number.
%
What is the estimated intrinsic price per share? Do not round intermediate calculations. Round your answer to the nearest
cent.
$

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АВС XYZ Discount rate (r) Historical growth rate of 0.015+2*0.085=0.185 0.015+1.5*0.085=0.142 (58/30)^(1/30)-1=0.022 Not available. Cannot dividends compute without dividends Sustainable growth rate Fundamental value using dividend growth model with the historical growth rate Fundamental value using the 467*(1+0.185)/(0.185-0.045) dividend growth model with =3953 the sustainable growth rate Fundamental value using residual income growth 0.15*(1-0.7)=0.045 467*(1+0.185)/(0.185-0.022) 0.2*(1-0)=0.2 Not available. Cannot =3395 compute without dividends Not available. Cannot compute without dividends 80*(1+0.022)-(550*0.022)/(0. 185-0.022)=427.36 Not available. Cannot compute without dividends model with the historical growth rate Fundamental value using the 80*(1+0.045)-(550*0.045)/(0. residual income growth 12*(1+0.2)-(100*0.2)/(0.142- 0.2)=96.5 185-0.045)=420.35 model with the sustainable growth rate
choose the answer only
The Swanson Corporation's common stock has a beta of 1.8. If the risk-free rate is 4.9 percent and the expected return on the market is 11 percent, what is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity capital %
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Ran Company wants to determine its cost of common stock equity using the CAPM. The company's investment advisors indicate that the firm’s beta is equals to 1.3;the risk-free rate is 6%; and the market return is 10%. (Do not round off between computations. Round off the final answer to two decimal places. Example of writing your answer 2.58%)
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On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor? _______________ Calculate the required return of a portfolio that has $6,000 invested in Stock X and $5,000 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places. rp = __________% If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return?
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