ESSENTIALS OF INVESTMENTS>LL<+CONNECT
11th Edition
ISBN: 9781264001026
Author: Bodie
Publisher: MCG
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Chapter 13, Problem 6PS
A firm pays a current dividend of
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A firm pays a current dividend of $1, which
is expected to grow at a rate of 6%
indefinitely. If the current value of the firm's
shares is $106, what is the required return
applicable to the investment based on the
constant-growth dividend discount model
(DDM)? (Do not round intermediate
calculations.)
A firm pays a current dividend of $2, which is expected to grow at a rate of 3% indefinitely. If the current value of the firm’s shares is $25, what is the required return applicable to the investment based on the constant-growth model?
Chapter 13 Solutions
ESSENTIALS OF INVESTMENTS>LL<+CONNECT
Ch. 13 - Prob. 1PSCh. 13 - Prob. 2PSCh. 13 - If a security is underpriced [Lew intrinsic value...Ch. 13 - Deployment Specialists pays a current (annual)...Ch. 13 - Jand, Inc, currently pays a dividend of 1.22,...Ch. 13 - A firm pays a current dividend of 1, which is...Ch. 13 - Tri-coat Paints has a current market value of 41...Ch. 13 - A firm has current assets that could be sold for...Ch. 13 - Prob. 9PSCh. 13 - Miltmar Corporation will pay a year-end dividend...
Ch. 13 - Sisters Corp. expects to earn 6 per share next...Ch. 13 - Eagle Products’ EBIT is 300 , its tax rate is 21 ,...Ch. 13 - FinCorp’s free cash flow to the firm is reported...Ch. 13 - A common stock pays an annual dividend per share...Ch. 13 - The risk-free rate of return is 5 , the required...Ch. 13 - Explain why the following statements are...Ch. 13 - a. Computer stocks currently provide an expected...Ch. 13 - Prob. 18PSCh. 13 - a. MF Corp. has an ROE of 16 and a plowback ratio...Ch. 13 - The market consensus is that Analog Electronic...Ch. 13 - The FE Corporation’s dividends per share are...Ch. 13 - The stock of Negro Corporation is currently...Ch. 13 - The risk-free rate of return is 8 , the expected...Ch. 13 - Prob. 24PSCh. 13 - Chiptech, Inc., is an established computer Chip...Ch. 13 - Prob. 1CPCh. 13 - 2. Phoebe Black‘s investment club wants to buy the...Ch. 13 - Prob. 3CPCh. 13 - Prob. 4CPCh. 13 - Prob. 5CPCh. 13 - 7. Shaar (from the previous problem) has revised...Ch. 13 - Prob. 8CP
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- A firm pays a current dividend of $1.00 which is expected to grow at a rate of 5% indefinitely. If current value of the firm's shares is $35.00, what is the required return based on the constant growth dividend discount model (DDM)? Required returnarrow_forwardA firm pays a current dividend of £2 which is expected to grow at a rate of 6% indefinitely. If the current value of the firm is £40, what is the required rate of return of the stock? If next year’s earnings are projected at £5, what is the present value of growth opportunities (PVGO)? (c) The firm increases its plowback, b. Would you expect the price of the stock to go up or down? (d) Explain in which situations a multistage growth model is appropriatearrow_forwardInvestors require a 15% rate of return on Levine Company’s stock (that is, rs = 15%). Suppose the previous dividend was D0 = $2. What is the value of the company’s stock if investors expect dividends to grow at a constant annual rate in each of the following scenarios: (1) –5%, (2) 0%, (3) 5%, or (4) 10%? Using data from question a, what would the Gordon (constant growth) model value be if the required rate of return was 15% and the expected growth rate was (1) 15% or (2) 20%? Are these reasonable results? Explain. Is it reasonable to think that a constant growth stock could have g > rs? Explain.arrow_forward
- M2arrow_forward5. The firm's expected year-end dividend is D1 = P 1.60, its required return is r, =11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is the firm's expected stock price in 7 years, i.e., what is P? a. P41.37 d. P43.44 с. Р 37.52 f. P43.56 b. Р39.40 e. P45.61 6. The firm just paid a dividend of Do =P 1.32. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock's current market value? с. Р43.75 f. P 44.87 a. P41.59 d. P 46.87 b. Р42.65 e. P45.99arrow_forwardSuppose Dragons, Inc. is expected to pay an annual dividend of $0.85 at t=1. Thereafter the dividend will increase at a growth rate g = 25% for two years, and at a growth rate g = 3% after two years. What should you pay for the stock at t=0 if the appropriate discount rate is 8%? Group of answer choices 24.47 18.98 27.47 34.67arrow_forward
- Suppose you are told that returns on Treasury Bills are currently at 5% and the market returns is 12%. The beta value for Cilly Bhd is 1.2. a) What is expected required rate of return on investment for Cilly Bhd? b) If Cilly Bhd is forecast to pay next year's dividends of RM 1.50 per share and that the annual dividend growth rate is 8% p.a., what is the expected share price of Cilly Bhd?arrow_forward9. The last dividend paid by the firm was P 1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (r.) is 12.0%. What is the best estimate of the current stock price? а. Р 39.38 d. P 40.48 с. Р 37.05 f. P 53.61 b. Р38.16 e. P41.70 10. The last dividend paid by the firm was P 1.25. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (r.) is 11%, what is its current stock price? а. Р 30.57 d. P 33.50 b. Р 34.50 с. Р 32.49 e. P31.52 f. P 36.82arrow_forwardSolve thisarrow_forward
- Suppose a firm expects EPS of $1.50 for the end of period and expect to mantain a dividend payout ratio of 60%. if the firm's price earning ratio is 7.8 and its return on equity is 10%, what is its required rate of returnarrow_forwardA firmrecently paid a dividend, D0, of $1.25. It expects to have nonconstant growth of 13% for 2 years followed by a constant rate of 8% thereafter. The firm's required return is 18%. What is the firm's horizon, or continuing, value? Do not round intermediate calculations. Round your answer to the nearest cent. What is the firm's intrinsic value today? Do not round intermediate calculations. Round your answer to the nearest cent.arrow_forwardWhat is the required rate of return on a share whose value is Kshs 62.50, its upcoming dividend is Kshs 5 and the growth rate is 4%?arrow_forward
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