EBK 3N3-EBK: FINANCIAL ANALYSIS WITH MI
8th Edition
ISBN: 9780176914943
Author: Mayes
Publisher: VST
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As an analyst at Chitalu & Daka Securities, you are responsible for making recommendations to your firm’s clients regarding common stocks. After gathering data, you have found that their dividends have been growing at a rate of 10% per year to the current (D0) rate of K0.60 per share. The stock is currently selling for K12 per share, and you believe that an appropriate rate of return for this stock is 15% per year.i. If you expect that the dividend will continue to grow at a 10% rate into the foreseeable future, what is the highest price at which you would recommend purchasing this stock to your clients?ii. Suppose now that you determine that the company’s new product line will cause much higher growth in the near future. Your revised estimate is for a three-year period of 20% annual growth which will be followed by a return to the historical 10% growth rate. Under these new assumptions, what is the current value of the stock using the two-stage dividend growth model?iii. After…
Your first task in your new job at an
investment bank is to price a new stock
issue. You expect the stock will pay a
dividend of $2 per share starting 1 year after
issue and that dividends will grow at 3.0%
per year thereafter. The return on similar
stocks is 5.5%.
a. What price would you assign to the stock?
You want to check if GRBH stock is fairly priced in the markets by using the fundamental analysis. For this purpose, you have gathered the following information:
GRBH pays dividends once a year and the next dividend payment is expected to be made in one year. You project the EPS of the first and second year to be $5 and $7 respectively. The company dividend payout ratio is stable at 0.2. At the end of the second year, you assume that the company would become the average company in the industry. The industry average PE ratio is 8. You believe that the appropriate required rate of return on GRBH stock is 10% (CCR per annum).
And the current market price of GRBH stock is $45.
ind the present value of GRBH stock based on the information above. Is the stock over- or under-priced?
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY