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
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Chapter 4, Problem 7PS
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M6
A decrease in which of the following will increase the current value of a share according to the dividend growth model?
Required rate of return.
Dividend amount.
Dividend growth rate.
Number of future dividends, provided the number is less than infinite.
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.
Chapter 4 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 4 - True/false True or false? a. All stocks in an...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 - Dividend discount model Company Z-prime is like Z...Ch. 4 - Dividend discount model If company Z (see Problem...Ch. 4 - Prob. 8PSCh. 4 - Prob. 9PSCh. 4 - Free cash flow Under what conditions does r, a...
Ch. 4 - Prob. 11PSCh. 4 - Prob. 12PSCh. 4 - Horizon value Suppose the horizon date is set at a...Ch. 4 - Stock quotes Go to finance.yahoo.com and get...Ch. 4 - Two-stage DCF model Consider the following three...Ch. 4 - Constant-growth DCF model Pharmecology just paid...Ch. 4 - Two-stage DCF model Company Qs current return on...Ch. 4 - Cost of equity capital Each of the following...Ch. 4 - Growth opportunities Alpha Corps earnings and...Ch. 4 - Prob. 23PSCh. 4 - Two-stage DCF model Compost Science Inc. (CSI) is...Ch. 4 - DCF and free cash flow Permian Partners (PP)...Ch. 4 - DCF and free cash flow Construct a new version of...Ch. 4 - Valuing a business Mexican Motors market cap is...Ch. 4 - Valuing Tree cash flow Phoenix Corp. faltered in...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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- 3. Guava Computers currently has earnings per share of $2.40, a dividend payment per share of $0.80, and book equity per share of $10. a. What is the company's rate of return on equity? What is its plowback ratio? b. Using the plowback/rate of return method, estimate the growth rate of dividend payments per share. What is your estimate of the capitalization rate on Guava's stock if the stock is currently selling for $23.20 с. per share? d. What is your estimate of the company's present value of growth opportunities if its discount rate is 15 percent?arrow_forwardHow a Company's dividend yield "expectations" change, if at all, if the company's ROI was 5% higher?arrow_forwardConsider 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)arrow_forward
- Using the constant dividend growth model, determine the price change in a share when the required rate of return decreases from 15 to 13 per cent combined with an increase in the dividend growth rate from 5 to 6 per cent. Select one: a. fall more than 50% b. rise less than 50% C. fall less than 50% d. rise more than 50%arrow_forwardThe dividend-growth model, V = Do(1+g) k-9 suggests that an increase in the dividend growth rate will increase the value of a stock. However, an increase in the growth may require an increase in retained earnings and a reduction in the current dividend. Thus, management may be faced with a dilemma: current dividends versus future growth. As of now, investors' required return is 11 percent. The current dividend is $1 a share and is expected to grow annually by 6 percent, so the current market price of the stock is $21.2. Management may make an investment that will increase the firm's growth rate to 8 percent, but the investment will require an increase in retained earnings, so the firm's dividend must be cut to $0.5 a share. Should management make the investment and reduce the dividend? Round your answer to the nearest cent. The value of the stock -Select- to $ , so the management -Select- make the investment and decrease the dividend.arrow_forwardUsing the constant dividend growth model, determine the percentage price change in a share when the required rate of return decreases from 19 to 17 per cent combined with a decrease in the dividend growth rate from 11 to 9 per cent. Select one: A. fall less than 2% B. rise more than 2%. C. rise less than 3% D. fall more than 2%arrow_forward
- The Wellington Co. likes to use the dividend discount model to estimate its cost of equity. What should that be (in percent to two places) if their stock today is $54 and with a constant dividend growth of 3% their next dividend is estimated to be $0.91? Urgent please helparrow_forwardIf the earnings retention ratio changes won't the growth rate change as well. Why do we continue to use the growth rates of 15% and 5% when the dividend payout policy changesarrow_forwarda. Determine average annual dividend growth rate over the past 5 years. Using that growth rate, what dividend would you expect the company to pay next year? b. Determine the net proceeds, N, that the firm will actually receive. c. Using the constant-growth valuation model, determine the required return on the company's stock, rg, which should equal the cost of retained earnings, r,. d. Using the constant-growth valuation model, determine the cost of new common stock, r,.arrow_forward
- In the context of DDM, a dividend payout ratio equal to 100% implies that the future growth rate of dividends per share (DPS) will be equal to 0%. a. True b. Falsearrow_forwardi need the answer quicklyarrow_forward4. An equity analyst has been asked to estimate the intrinsic value of the common stock of Apple. Apple is in a mature industry, and both its earnings and dividends are expected to grow at a rate of 4% annually. Which of the following is most likely to be the best model for determining the intrinsic value of an Apple share? A. Gordon growth model. В. Free cash flow to equity model. C. Multistage dividend discount model.arrow_forward
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