Corporate Finance Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
4th Edition
ISBN: 9780134408897
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 9, Problem 14P
Summary Introduction
To determine: The value of the firm.
Introduction:
It is a method of calculating a company’s stock value; the expected value is the sum of the future dividend payment, which is discounted back to their
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
The required return on a stock is equal to which one of the following if the dividend on the stock
decreases by a constant percent per year?
O Dividend yield - Capital gains yield
O (PO/D1) - g
O (D1/PO)/g
Dividend yield x Capital gains yield
O Dividend yield + Capital gains yield
Reizenstein Technologies (RT) has just developèd a solar panel capable of
generating 200% more electricity than any solar panel currently ón the market. As.
result, RT is expected to experience a 15% annual growth rate for the next 5 vear
By the end of 5 years, other firms will have developed comparable technology, and
RT's growth rate will slow to 5% per year indefinitely. Stockholders require a return
of 12% on RT's stock. The most recent annual dividend (Do), which was paid
yesterday, was $1.75 per share.
a. Calculate RT's expected dividends for t 1, t 2, t 3, t = 4, and t 5.
b. Calculate the estimated intrinsic value of the stock today, Po. Proceed by finding the
present value of the dividends expected at t 1, t 2, t 3, t = 4, and t = 5 plus the
present value of the stock price that should exist at t = 5, P,. The Ps stock price can
%3D
Kimbi Limited had the following items on its balance sheet at the beginning of the
year:
Assets
Cash
Property Plant &
Equipment
Liabilities and
equity
$50,000 Debt
$
350,000
Equity
$
100, 000
$
300,000
The net profit this year is $20, 000 with a dividend of $5, 750.
Chapter 9 Solutions
Corporate Finance Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
Ch. 9.1 - How do you calculate the total return of a stock?Ch. 9.1 - Prob. 2CCCh. 9.2 - In what three ways can a firm increase its future...Ch. 9.2 - Under what circumstances can a firm increase its...Ch. 9.3 - How does the growth rate used in the total payout...Ch. 9.3 - Prob. 2CCCh. 9.3 - Prob. 3CCCh. 9.4 - Prob. 1CCCh. 9.4 - What implicit assumptions are made when valuing a...Ch. 9.5 - State the efficient market hypothesis.
Ch. 9.5 - Prob. 2CCCh. 9 - Assume Evco, Inc., has a current price of 50 and...Ch. 9 - Anle corporation has a current price of 20, is...Ch. 9 - Suppose Acap Corporation will pay a dividend of...Ch. 9 - Prob. 4PCh. 9 - NoGrowth Corporation currently pays a dividend of...Ch. 9 - Summit Systems will pay a dividend of 1.50 this...Ch. 9 - Prob. 7PCh. 9 - Canadian-based mining company EI Dorado Gold (EGO)...Ch. 9 - In 2006 and 2007, Kenneth Cole Productions (KCP)...Ch. 9 - DFB, Inc., expects earnings at the end of this...Ch. 9 - Cooperton Mining just announced it will cut its...Ch. 9 - Procter and Gamble (PG) paid an annual dividend of...Ch. 9 - Colgate-Palmolive Company has just paid an annual...Ch. 9 - Prob. 14PCh. 9 - Halliford Corporation expects to have earnings...Ch. 9 - Prob. 16PCh. 9 - Maynard Steel plans to pay a dividend of 3 this...Ch. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - Prob. 23PCh. 9 - Prob. 24PCh. 9 - Prob. 25PCh. 9 - Suppose that In January 2006, Kenneth Cole...Ch. 9 - In addition to footwear, Kenneth Cole Productions...Ch. 9 - You read in the paper that Summit Systems from...Ch. 9 - Prob. 31PCh. 9 - Prob. 32PCh. 9 - Prob. 33P
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
- What is the required rate of return on a share whose value is Kshs 62.50, its upcoming dividend is Kshs 5 and the growth rate is 4%?arrow_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_forwardFor Company ABC, if stock price P0 = $30; dividend paid at the end of period 1 D1 = $3.00; growth rate g = 5%; What’s the required rate of return for equity holder rs = ? If the flotation cost F = 10%; What’s the required rate of return for equity holder rs = ?arrow_forward
- What is the company’s cost of capital? 1. CAPM = rrf + (rm – rrf)B = required rate of return on equityr rf = risk-free rate of return = 10-year Treasury rate = 3% S&P market premium (in parenthesis) is the extra return to cover risk offered in the stock market = 5%. B = Beta of company = 1.2 2. WACC = wdrd(1-t) + were = weighted average cost of capitalWeights of debt and equity: Given debt ratio, that is, debt to total assets = 28%. Cost of debt is bond rating at high end of A average = 6%. Tax rate given 40%.arrow_forwardSolve thisarrow_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
- Anle Corporation has a current price of $16, is expected to pay a dividend of $1 in one year, and its expected price right after paying that dividend is $24. a. What is Anle's expected dividend yield? b. What is Anle's expected capital gain rate? c. What is Anle's equity cost of capital?arrow_forwardSolve this questionarrow_forward2. A company pays a dividend of $1.50 today. The company has a required rate of return of 14% and the dividend is expected to be $1.50 per year forever. What is the value of the stock today? What is the value in 5 years? What is the dividend yield? What is the capital gain yield?arrow_forward
- Suppose a firm is expected to increase dividends by 20% in one year and decrease by 12% in two years and then increase by 15% in three years. After that dividends will increase at a rate of 5% per year indefinitely. The last dividend was $1.55 and the required return is 13%. a) Compute the dividends until growth levels off. Ans: D1 = ? D2 = ? D3 = ? D4 = ? b) Find the expected future price at the beginning of the constant growth period: Ans: P3 = ? c) Find the present value of the expected future cash flows Ans: P0 = ?arrow_forwardThe dividend growth model CANNOT be used in which of the following? a. When dividends are expected to grow every year. b. When the payout ratio is constant.c. When dividends are expected to grow every quarter. d. When the payout is greater than the amount earned.arrow_forwardSuppose Lilly V, Inc. has just paid a dividend. The next dividend, to be paid in a year, is forecasted to be $4. If the growth rate of dividends is 7% and the discount rate is 11%, at what price will the stock sell? a.Less than $100 b.More than $100 c.$100 d.$111arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY