Dividend growth rate using Gordon growth model assuming that the firm’s current stock price of $58.49 equals intrinsic value. Introduction: The dividend growth rate is depends on the dividend value, growth rate, return rate , and intrinsic value of the stock. It tells us about the growth of the investment.

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Answer 1

Question

Chapter 18, Problem 6CP

A

Summary Introduction

To calculate: Dividend growth rate using Gordon growth model assuming that the firm’s current stock price of $58.49 equals intrinsic value.

Introduction: The dividend growth rate is depends on the dividend value, growth rate, return rate, and intrinsic value of the stock. It tells us about the growth of the investment.

B

Summary Introduction

To select: Appropriateness of the Gordon growth model for common stock.

Introduction : In common stock, the dividend value and earning is not increasing at same rate. Thus dividend value should be kept constant and earnings are increases.

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Consider the following security: Brous Metalworks Earnings Per Share, Time = 0 $2.00 Dividend Payout Rate 0.250 Return on Equity 0.150 Market Capitalization Rate 0.125 Required: Using the information in the tables above, please calculate the sustainable growth rate, dividends per share, and intrinsic value per share. Then solve for the present value of growth opportunities. (Use cells A5 to B8 from the given information to complete this question.) Brous Metalworks Sustainable Growth Rate Dividends per share (Next Year) Intrinsic Value No-Growth Value Per Share Present Value of Growth Opportunities (PVGO)

Which of the following statements is CORRECT? a. The constant growth model takes into consideration the capital gains investors expect to earn on a stock. b. Two firms with the same expected dividend and growth rate must also have the same stock price. c. It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant. d. If a stock has a required rate of return rs = 12%, and if its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%. e. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate. provide an explanation for the choice.

Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 36.5%, and the current dividend yield is 8.50%. Its beta is 1.33, the market risk premium is 14.50%, and the risk-free rate is 2.70%. a. Use the CAPM to estimate the firm's cost of equity. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. b. Now use the constant growth model to estimate the cost of equity. Note: Do not round intermediate calculations. Enter your answer as a whole percent. c. Which of the two estimates is more reasonable? a. Cost of equity % % c. Which of the two estimates is more reasonable? b. Cost of equity

Answer 2

Question

Chapter 18, Problem 6CP

A

Summary Introduction

To calculate: Dividend growth rate using Gordon growth model assuming that the firm’s current stock price of $58.49 equals intrinsic value.

Introduction: The dividend growth rate is depends on the dividend value, growth rate, return rate, and intrinsic value of the stock. It tells us about the growth of the investment.

B

Summary Introduction

To select: Appropriateness of the Gordon growth model for common stock.

Introduction : In common stock, the dividend value and earning is not increasing at same rate. Thus dividend value should be kept constant and earnings are increases.

Expert Solution & Answer

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Answer 3

Question

Chapter 18, Problem 6CP

A

Summary Introduction

To calculate: Dividend growth rate using Gordon growth model assuming that the firm’s current stock price of $58.49 equals intrinsic value.

Introduction: The dividend growth rate is depends on the dividend value, growth rate, return rate, and intrinsic value of the stock. It tells us about the growth of the investment.

B

Summary Introduction

To select: Appropriateness of the Gordon growth model for common stock.

Introduction : In common stock, the dividend value and earning is not increasing at same rate. Thus dividend value should be kept constant and earnings are increases.

Expert Solution & Answer

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Check out a sample textbook solution

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Answer 4

Question

Chapter 18, Problem 6CP

A

Summary Introduction

To calculate: Dividend growth rate using Gordon growth model assuming that the firm’s current stock price of $58.49 equals intrinsic value.

Introduction: The dividend growth rate is depends on the dividend value, growth rate, return rate, and intrinsic value of the stock. It tells us about the growth of the investment.

B

Summary Introduction

To select: Appropriateness of the Gordon growth model for common stock.

Introduction : In common stock, the dividend value and earning is not increasing at same rate. Thus dividend value should be kept constant and earnings are increases.

Expert Solution & Answer

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Check out a sample textbook solution

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Answer 5

Chapter 18, Problem 6CP

A

Summary Introduction

To calculate: Dividend growth rate using Gordon growth model assuming that the firm’s current stock price of $58.49 equals intrinsic value.

Introduction: The dividend growth rate is depends on the dividend value, growth rate, return rate, and intrinsic value of the stock. It tells us about the growth of the investment.

B

Summary Introduction

To select: Appropriateness of the Gordon growth model for common stock.

Introduction : In common stock, the dividend value and earning is not increasing at same rate. Thus dividend value should be kept constant and earnings are increases.

Answer 6

Chapter 18, Problem 6CP

A

Summary Introduction

To calculate: Dividend growth rate using Gordon growth model assuming that the firm’s current stock price of $58.49 equals intrinsic value.

Introduction: The dividend growth rate is depends on the dividend value, growth rate, return rate, and intrinsic value of the stock. It tells us about the growth of the investment.

Answer 7

Chapter 18, Problem 6CP

A

Summary Introduction

To calculate: Dividend growth rate using Gordon growth model assuming that the firm’s current stock price of $58.49 equals intrinsic value.

Introduction: The dividend growth rate is depends on the dividend value, growth rate, return rate, and intrinsic value of the stock. It tells us about the growth of the investment.

Answer 8

B

Summary Introduction

To select: Appropriateness of the Gordon growth model for common stock.

Introduction : In common stock, the dividend value and earning is not increasing at same rate. Thus dividend value should be kept constant and earnings are increases.

Answer 9

B

Summary Introduction

To select: Appropriateness of the Gordon growth model for common stock.

Introduction : In common stock, the dividend value and earning is not increasing at same rate. Thus dividend value should be kept constant and earnings are increases.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 18 - Prob. 1PS Ch. 18 - Prob. 2PS Ch. 18 - Prob. 3PS Ch. 18 - Prob. 4PS Ch. 18 - Prob. 5PS Ch. 18 - Prob. 6PS Ch. 18 - Prob. 7PS Ch. 18 - Prob. 8PS Ch. 18 - Prob. 9PS Ch. 18 - Prob. 10PS

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To select: Appropriateness of the Gordon growth model for common stock.

Introduction : In common stock, the dividend value and earning is not increasing at same rate. Thus dividend value should be kept constant and earnings are increases.

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Chapter 18 Solutions

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To select: Appropriateness of the Gordon growth model for common stock. Introduction : In common stock, the dividend value and earning is not increasing at same rate. Thus dividend value should be kept constant and earnings are increases.

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Chapter 18 Solutions

To select: Appropriateness of the Gordon growth model for common stock.

Introduction : In common stock, the dividend value and earning is not increasing at same rate. Thus dividend value should be kept constant and earnings are increases.