Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 2, Problem 7PS
Growing perpetuities A common stock will pay a cash dividend of $4 next year. After that, the dividends are expected to increase indefinitely at 4% per year. If the discount rate is 14%, what is the PV of the stream of dividend payments?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A common stock will pay a cash dividend of $4.25 next year. After that, the dividends are
expected to increase indefinitely at 4% per year. If the discount rate is 14%, what is the PV of
the stream of dividend payments?
Note: Round your answer to 2 decimal places.
Present Value
A company's next dividend is USD6.5 which is expected to remain stable in the coming years, till
perpetuity. Your required rate of return is 16%.
a. How much will you offer to buy this stock at?
b. If the dividends will grow at a rate of 4% per year, what will be the dividend that the
company will distribute in year 16?
C. If the dividends will grow at a rate of 2%, what will be the price of the stock in year 9?
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%.
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?
Chapter 2 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 2 - (FV) In 1880, five aboriginal trackers were each...Ch. 2 - Prob. 2SQCh. 2 - (PV) Your company can lease a truck for 10,000 a...Ch. 2 - (RATE) Ford Motor stock was one of the victims of...Ch. 2 - Prob. 5SQCh. 2 - Prob. 6SQCh. 2 - Prob. 8SQCh. 2 - (NOMINAL) What monthly compounded interest rate...Ch. 2 - Future values If you invest 100 at an interest...Ch. 2 - Discount factors If the PV of 139 is 125, what is...
Ch. 2 - Prob. 3PSCh. 2 - Prob. 4PSCh. 2 - Opportunity cost of capital Which of the following...Ch. 2 - Perpetuities An investment costs 1,548 and pays...Ch. 2 - Growing perpetuities A common stock will pay a...Ch. 2 - Prob. 8PSCh. 2 - Present values What is the PV of 100 received in:...Ch. 2 - Continuous compounding The continuously compounded...Ch. 2 - Compounding intervals You are quoted an interest...Ch. 2 - Future values and annuities a. The cost of a new...Ch. 2 - Prob. 13PSCh. 2 - Present values A factory costs 800,000. You reckon...Ch. 2 - Present values A machine costs 380,000 and is...Ch. 2 - Opportunity cost of capital Explain why we refer...Ch. 2 - Present values A factory costs 400,000. It will...Ch. 2 - Present values and opportunity cost of capital...Ch. 2 - Prob. 19PSCh. 2 - Prob. 20PSCh. 2 - Annuities David and Helen Zhang are saving to buy...Ch. 2 - Annuities Kangaroo Autos is offering free credit...Ch. 2 - Present values Recalculate the NPV of the office...Ch. 2 - Prob. 24PSCh. 2 - Prob. 25PSCh. 2 - Continuous compounding How much will you have at...Ch. 2 - Perpetuities You have just read an advertisement...Ch. 2 - Compounding intervals Which would you prefer? a....Ch. 2 - Compounding intervals A leasing contract calls for...Ch. 2 - Annuities Several years ago, The Wall Street...Ch. 2 - Prob. 31PSCh. 2 - Prob. 32PSCh. 2 - Prob. 33PSCh. 2 - Prob. 34PSCh. 2 - Prob. 35PSCh. 2 - Amortizing loans Suppose that you take out a...Ch. 2 - Prob. 37PSCh. 2 - Annuities Use Excel to construct your own set of...Ch. 2 - Declining perpetuities and annuities You own an...
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
- A common stock will pay a cash dividend of $4 next year. After that, the dividends are expected to increase indefinitely at 2% per year. If the discount rate is 13%, what is the PV of the stream of dividend payments? (Round your answer to 2 decimal places.)arrow_forwardNextEra Energy, Inc. (NEE), is expected to pay an annual dividend of $5.6 in t=1. Annual dividends are then expected to grow at a constant rate of 3% per year, in perpetuity. If the discount rate is 7%, what is the present value of NEE’s future dividends?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%. 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?arrow_forward
- What would be the price of a stock that pays an annual fixed dividend of $1.2 for ten years, and then the dividend payment increases by 1% every year, and the required rate of return is 5% annually?arrow_forwardHow much would you be prepared to pay for a share in 2 years’ time that pays a $1.5 dividend each year constantly ? Assume the required rate of return is expected to remain constant at 9.1% per year.arrow_forwardA corpus expected to pay a dividend of $1.25 per share at the end of the year (D1=$1.25). the stock sells for 27.50 per share and it's required return is 9.75 the dividend is expected to grow at some constant rate forever. what is the equilibrium expected growth rate?arrow_forward
- The next dividend payment by Savitz, Inc., will be $2.43 per share. The dividendsare anticipated to maintain an annual growth rate of 3.5% forever. If the stockcurrently sells for $70 per share, what is the required return?arrow_forwardIf next years dividend, D = $1.25, g (which is constant) = 5.5%, and the current price, P = $28, what is the stock’s expected total return for the coming year?arrow_forwardA stock will pay a dividend next quarter of $1.00. If the expected return is 10% per year, compounded annually, what is the price of the stock? Suppose a stock will pay $0 for the next 4 years, and then pay $1 every quarter after that. The required return is 10% per year, compounded annually. What is the price of the stock? Suppose a stock will pay $0.50, $1.00, $1.50, $2.00 and then grow at 4% per year compounded quarterly. The required return is 10% per year compounded annually. What is the price of the stock?arrow_forward
- If the next year's dividend is $1, and all the future dividends are expected to grow at $0.05 annually, what is the expected value of the stock if the required is 10%? 10 15 20arrow_forwardThe dividend is expected to be RM1 per share and increase by 5% each year. Calculate the stock's current value if the required rate return is 10%arrow_forwardWhat should you pay for a stock if next year's annual dividend is forecast to be $5.25, the constant-growth rate is 2.85%, and you require a 15.5% rate of return?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY