PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 4, Problem 21PS
Growth opportunities If company Z (see Problem 10) were to distribute all its earnings, it could maintain a level dividend stream of $15 a share. How much is the market actually paying per share for growth opportunities?
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13... What conditions are necessary for the Constant Dividend Growth Model to be used? Select all that apply.
a.The required rate of return must be greater than the dividend growth rate.
b.The dividend must be at least $3.
c.The company must pay taxes.
d.The company's dividend growth rate must be expected to remain constant.
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)
The Stieben Company has determined that the following will be true next year:
T(ratio of total assets of sales)=1
P(net profit of margin)=5%
d(dividend pay out ratio)=50%
L(debt equity ratio)=1
a) What is Stieben's sustainable growth rate in sales?
b)Can Stieben's actual growth rate in sales be different from its sustainable growth rate?
Why or why not?
c) How can Stieben change its sustainable growth?
Chapter 4 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 4 - Stock markets True or false? a. The bid price is...Ch. 4 - Stock quotes a. I would like to sell 1000 shares...Ch. 4 - Stock quotes Here is a small part of the order...Ch. 4 - Stock quotes Go to finance.yahoo.com and get...Ch. 4 - Valuation by comparables Look up P/E and P/B...Ch. 4 - Dividend discount model True or false? a. All...Ch. 4 - Dividend discount model Respond briefly to the...Ch. 4 - Dividend discount model Company X is expected to...Ch. 4 - Dividend discount model Company Y does not plow...Ch. 4 - Constant-growth DCF model Company Zs earnings and...
Ch. 4 - Prob. 11PSCh. 4 - Constant-growth DCF model Pharmecology just paid...Ch. 4 - Prob. 13PSCh. 4 - Cost of equity capital Under what conditions does...Ch. 4 - Cost of equity capital Each of the following...Ch. 4 - Two-stage DCF model Company Z-prime is like Z in...Ch. 4 - Two-stage DCF model Consider the following three...Ch. 4 - Two-stage DCF model Company Qs current return on...Ch. 4 - Two-stage DCF model Compost Science Inc. (CSI) is...Ch. 4 - Growth opportunities If company Z (see Problem 10)...Ch. 4 - Growth opportunities Alpha Corps earnings and...Ch. 4 - Prob. 24PSCh. 4 - Prob. 25PSCh. 4 - Prob. 26PSCh. 4 - Horizon value Suppose the horizon date is set at a...Ch. 4 - Valuing a business Permian Partners (PP) produces...Ch. 4 - Valuing a business Construct a new version of...Ch. 4 - Valuing a business Mexican Motors market cap is...Ch. 4 - Valuing a business Phoenix Corp. faltered in the...Ch. 4 - Constant-growth DCF formula The constant-growth...Ch. 4 - DCF valuation Portfolio managers are frequently...Ch. 4 - Valuing a business Construct a new version of...
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- I need detailed explanation for the following question If a firm bases its growth projection on the rate of sustainable growth, shows positive net income, and has a dividend payout ratio of 30 percent, then the: A. fixed assets will have to increase at the same rate, even if the firm is currently operating at only 78 percent of capacity.B. number of common shares outstanding will increase at the same rate of growth.C. debt-equity ratio will have to increase.D. debt-equity ratio will remain constant while retained earnings increase.E. fixed assets, the debt-equity ratio, and number of common shares outstanding will all increasearrow_forwardProvide solution for this questionarrow_forwardBased on the data from the table, which company would you expect to have the highest projected earnings growth rate? D A B OC Company A B C D Estimated Estimated Projected P/E ratio EPS Price? 20 30 40 25 5 3 3 4 **arrow_forward
- Need answervarrow_forwardSolve this problemarrow_forwardXYZ Corp. is anticipating a sustained growth rate of 15% per year. Is it possible for them to achieve this growth rate given the following numbers. Debtequity ratio of 0.40 times Profit margin is 5.3 percent Capital Intensity Ratio is 0.75 times To answer: determine what the dividend payout ratio must be. How do you interpret the result? no excel plzarrow_forward
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