Foundations Of Financial Management
17th Edition
ISBN: 9781260013917
Author: BLOCK, Stanley B., HIRT, Geoffrey A., Danielsen, Bartley R.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 10, Problem 31P
Justin Cement Company has had the following pattern of earnings per share over the last five years:
The earnings per share have grown at a constant rate (on a rounded basis) and will continue to do so in the future. Dividends represent 40 percent of earnings. Project earnings and dividends for the next year (20X6).
If the required
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
The stock of Nogro Corporation is currently selling for $10 per share. Earnings per share in the coming year are expected to be $2. The company has a policy of paying out 50% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 20% rate of return per year. This situation is expected to continue indefinitely.
a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Nogro’s investors require?b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested?c. If Nogro were to cut its dividend payout ratio to 25%, what would happen to its stock price?d. What if Nogro eliminated the dividend?
News Corp is expected to pay a dividend
of $0.8 in one year. The dividend is
expected to grow at 12% in the following 3
years and then at a constant rate of 4% per
annum indefinitely. If the required rate of
return is 12%, what is the price of the
company's share today? Please illustrate
your answer using a timeline.
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?
Chapter 10 Solutions
Foundations Of Financial Management
Ch. 10 - Prob. 1DQCh. 10 - Prob. 2DQCh. 10 - What are the three factors that influence the...Ch. 10 - If inflationary expectations increase, what is...Ch. 10 - Why is the remaining time to maturity an important...Ch. 10 - What are the three adjustments that have to be...Ch. 10 - Why is a change in required yield for preferred...Ch. 10 - What type of dividend pattern for common stock is...Ch. 10 - What two conditions must be met to go from Formula...Ch. 10 - What two components make up the required rate of...
Ch. 10 - Prob. 11DQCh. 10 - Prob. 12DQCh. 10 - What approaches can be taken in valuing a firm’s...Ch. 10 - Prob. 1PCh. 10 - Prob. 2PCh. 10 - For the first 20 bond problems, assume interest...Ch. 10 - Prob. 4PCh. 10 - Prob. 5PCh. 10 - Prob. 6PCh. 10 - Prob. 7PCh. 10 - Prob. 8PCh. 10 - For the first 20 bond problems, assume interest...Ch. 10 - Prob. 10PCh. 10 - Prob. 11PCh. 10 - For the first 20 bond problems, assume interest...Ch. 10 - Prob. 13PCh. 10 - Prob. 14PCh. 10 - For the first 20 bond problems, assume interest...Ch. 10 - For the first 20 bond problems, assume interest...Ch. 10 - Prob. 17PCh. 10 - Prob. 18PCh. 10 - Prob. 19PCh. 10 - Prob. 20PCh. 10 - For the next two problems, assume interest...Ch. 10 - For the next two problems, assume interest...Ch. 10 - For the next two problems, assume interest...Ch. 10 - For the next two problems, assume interest...Ch. 10 - For the next two problems, assume interest...Ch. 10 - Prob. 26PCh. 10 - All of the following problems pertain to the...Ch. 10 - All of the following problems pertain to the...Ch. 10 - Ecology Labs Inc. will pay a dividend of $6.40 per...Ch. 10 - Maxwell Communications paid a dividend of $3 last...Ch. 10 - Justin Cement Company has had the following...Ch. 10 - A firm pays a dividend at the end of year one ...Ch. 10 - A firm pays a dividend at the end of year one ...Ch. 10 - Prob. 34PCh. 10 - Beasley Ball Bearings paid a dividend last year....Ch. 10 - Prob. 2WECh. 10 - Prob. 3WECh. 10 - Prob. 4WE
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 stock of Nogro Corporation is currently selling for $29 per share. Earnings per share in the coming year are expected to be $3.90. The company has a policy of paying out 50% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 21% rate of return per year. This situation is expected to continue indefinitely. a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Nogro's investors require (round to 2 decimal places)? Rate of Return ?% b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested (round to 2 decimal places)? PVGO $?arrow_forwardSimon Fixtures Corp. is expected to pay $2.00 per share in dividends at the end of the year. The growth rate in dividends is expected to be constant at 8% per year. If the stock is selling for $50 per share, what is the required rate of return?arrow_forwardThe stock of Nogro Corporation is currently selling for $28 per share. Earnings per share in the coming year are expected to be $7.00. The company has a policy of paying out 50% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 25% rate of return per year. This situation is expected to continue indefinitely. Required: Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Nogro’s investors require? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. If Nogro were to cut its dividend payout ratio to 25%, what would happen to its stock price? Note: Round your answer to 2 decimal places. What would happen to its…arrow_forward
- The stock of Nogro Corporation is currently selling for $16 per share. Earnings per share in the coming year are expected to be $4 The company has a policy of paying out 40% of its earnings each year in dividends. The rest es retained and invested in projects that earn a 25% rate of return per year. This situation is expected to continue indefinitely Required: a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Nogro's investors require? (Do not round intermediate calculations.) Rate of retur Return to question Answer is complete and correct. 250% b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing was reinvested?arrow_forwardA company is expected to pay a dividend of $3.0 per share next year. Over the next three years, the dividends are expected to grow at 15%. Beyond that, the dividends are expected to grow at a constant rate of 4%. The required rate of return is 11%. What is the price of this stock today?arrow_forwardWhizcom 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%. a) What would be the likely stock price in year 5? b) What would be per annum rate of return implied by a change in prices from time 0 to time 5?arrow_forward
- Universal Exports is expected to pay the following dividends over the next four years: $8, $4, $2, and $2. Afterwards the company is expected to maintain a constant 4 percent growth rate in dividends. If the required return is 15 percent, what is the maximum that you would be willing to pay for a stock of Universal today?arrow_forwardAnswer C and D correctly!arrow_forwardCompany A is a worldwide delivery company that is expected to generate a dividend (per share) of $1.40 one year from now (i.e. at t=1). You are expecting that on average Company A's dividends will grow at 5% each year after that into the indefinite future. Assume for simplicity that all dividends are paid at the end of each year. Suppose that the appropriate discount rate for these dividends is 10%. a. What is the current stock price for Company A? Assume that any dividend at t=0 has already been paid out. b. What do you expect the stock price of Company A to be next year (i.e. at t=1) immediately after the dividend has been paid out? c. What is the expected return for holding the stock of Company A over the year ahead? Hint: Find the IRR on the expected cash flows from buying and holding the stock for one year. The cash flows should include the purchase and sale of the stock as well as the dividend you will receivearrow_forward
- 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?arrow_forwardStag Company will pay dividends of $9.6, $5.9, $9.7 and $10 for the next four years. Thereafter, the company expects its growth rate to be at a constant rate of 10 per cent. If the required rate of return is 16 per cent, what is the current market price of the share?arrow_forwardA firm is expected to pay a dividend of $2.85 next year and $3.15 the following year. Financial analysts believe the stock will be at their price target of $110 in two years.Compute the value of this stock with a required return of 13.1 percenarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY