Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 7, Problem 7.22P
Summary Introduction
To determine: The risk premium on its common stock.
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Integrative-Risk and Valuation Given the following information for the stock of Foster Company, calculate the risk premium on its common stock. (Click on the icon here a in order to copy the contents of the data table below into a spreadsheet.)
Current price per share of common stock
Expected dividend per share next year
Constant annual dividend growth rate
$49.19
$2.26
9.9%
Risk-free rate of return
6.4%
Integrative—Risk
and Valuation Given the following information for the stock of Foster Company, calculate the risk premium on its common stock.
Current price per share of common stock
$40.91
Expected dividend per share next year
$3.12
Constant annual dividend growth rate
6.2%
Risk-free rate of return
7.9%
The risk premium on Foster stock is ____% (Round to two decimal places.)
Integrative—Risk and Valuation
Given the following information for the stock of Foster Company, calculate the risk premium on its common stock.
Current price per share of common stock
$33.82
Expected dividend per share next year
$1.12
Constant annual dividen growth rate
8.8%
Risk-free rate of return
4.3%
Chapter 7 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 7.1 - What are the key differences between debt and...Ch. 7.2 - What risks do common stockholders take that other...Ch. 7.2 - Prob. 7.3RQCh. 7.2 - Explain the relationships among authorized shares,...Ch. 7.2 - Prob. 7.5RQCh. 7.2 - Prob. 7.6RQCh. 7.2 - Explain the cumulative feature of preferred stock....Ch. 7.3 - Describe the events that occur in an efficient...Ch. 7.3 - Prob. 7.9RQCh. 7.3 - Describe, compare, and contrast the following...
Ch. 7.3 - Describe the free cash flow valuation model, and...Ch. 7.3 - Explain each of the three other approaches to...Ch. 7.4 - Prob. 7.13RQCh. 7.4 - Assuming that all other variables remain...Ch. 7 - Prob. 7.1STPCh. 7 - Learning Goal 5 ST7-2 Free cash flow valuation...Ch. 7 - Prob. 7.1WUECh. 7 - Prob. 7.2WUECh. 7 - Prob. 7.3WUECh. 7 - Prob. 7.4WUECh. 7 - Prob. 7.5WUECh. 7 - Prob. 7.6WUECh. 7 - Authorized and available shares Aspin...Ch. 7 - Preferred dividends Acura Labs Inc. has an...Ch. 7 - Learning Goal 2 P7-3 Preferred dividends In each...Ch. 7 - Learning Goal 2 P7-4 Convertible preferred stock...Ch. 7 - Learning Goal 4 P7-5 Preferred stock valuation TXS...Ch. 7 - Prob. 7.6PCh. 7 - Preferred stock valuation Jones Design wishes to...Ch. 7 - Learning Goal 4 P7-8 Common stock value: Constant...Ch. 7 - Common stock value: Constant growth McCracken...Ch. 7 - Learning Goal 4 P7- 11 Common stock value:...Ch. 7 - Prob. 7.12PCh. 7 - Prob. 7.13PCh. 7 - Learning Goal 4 P7-14 Common stock value: Variable...Ch. 7 - Prob. 7.15PCh. 7 - Prob. 7.16PCh. 7 - Learning Goal 5 P7-17 Free cash flow valuation...Ch. 7 - Prob. 7.20PCh. 7 - Prob. 7.21PCh. 7 - Prob. 7.22PCh. 7 - Prob. 7.23PCh. 7 - Integrative: Risk and valuation Hamlin Steel...Ch. 7 - Prob. 7.25P
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- (similar to) Question Help Integrative-Risk and Valuation Given the following information for the stock of Foster Company, calculate the risk premium on its common stock. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) $46.71 D Current price per share of common stock Expected dividend per share next year Constant annual dividend growth rate $4.91 5.2% Risk-free rate of return 5.8% The risk premium on Foster stock is %. (Round to two decimal places.)arrow_forwardGiven the following information for the stock of Foster Company, calculate the risk premium on its common stock. Current price per share of common stock $58.14 Expected dividend per share next year $1.95 Constant annual dividend growth rate 7.5% Risk-free rate of return 7.2% a. The risk premium on Foster stock is ___ % Just need that a answeredarrow_forwardPLEASE SOLVE THIS QUESTION, ASAP: Q: Suppose a company estimates following one year returns from investing in the common stock of Leopard Corporation: Possibility of Occurrence .1 .25 .1 .15 .1 .2 .1 Possible returns 15% 30% 15% -10% -5% 20% 10% Required: Calculate Expected return & Risk {Standard Deviation)arrow_forward
- Consider the following security: Applegate Aeronautical, Incorporated Earnings Per Share, Next Year $2.50 Dividend Payout Rate 0.400 Return on Equity 0.150 Beta 1.250 Market Data Market Risk Premium 0.075 Risk-free Rate 0.025 Required: Using the information in the tables above, please calculate the dividend per share, the retained earnings, and the intrinsic value of this stock. (Use cells A5 to B12 from the given information to complete this question.) Applegate Aeronautical, Incorporated Market Capitalization Rate Dividends per share (Next Year) Sustainable Growth Rate Intrinsic Valuearrow_forwardGiven the following information for the stock of Foster Company, calculate the risk premium on its common stock. Current price per share of common stock $47.02 Expected dividend per share next year $2.46 Constant annual dividend growth rate 5.9% Risk-free rate of return 3.9% The risk premium on Foster stock is ___%arrow_forwardIf risk free rate is 7% and the market return is 15%. Compute the expected and required return on each stock, determine the appropriate trading strategy Stock Price today Price in 1 year Dividends in 1 year Beta A $25 $27 $1 1 B $40 $45 $2 0.8 C $15 $17 $0.50 1.2arrow_forward
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- An investor with a required return of 14 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase. The information is as follows: Firm A B Current earnings $2.10 $3.50 $6.80 Current dividend $1.70 $4.30 $8.10 Expected annual growth rate in 5% 3% -3% dividends and earnings Current market price $ 25 $ 48 $ 54 a. What is the maximum price that the investor should pay for each stock based on the dividend-growth model? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ b. If the investor does buy stock A, what is the implied percentage return? Round your answer to two decimal places. % c. If the appropriate P/E ratio is 15, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the appropriate P/E ratio is 6, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A:…arrow_forwardprovide ans..arrow_forwardIn the cell , by using cell references to the given data, calculate the value of stock E. Stock E Dividend expected next year $ 2.25 Dividend growth rate 8% Required return 20% Stock valuearrow_forward
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