CNCT ACC CORPORATE FINANCE
12th Edition
ISBN: 9781264604081
Author: Ross
Publisher: MCGRAW-HILL HIGHER EDUCATION
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 30QAP
a.
Summary Introduction
Adequate information:
Current dividend per period (D0) = $3.80
Growth rate of dividend (g) = 4.5%
Required
To determine: Current price of the stock
Introduction: The dividend growth model computes the stock price with the help of the growth rate, required rate, and dividend for the next period.
b.
Summary Introduction
Adequate information:
Frequency of payments in a year = 4
Current dividend per period (D0) = $3.80
Growth rate of dividend (g) = 4.5%
Required rate of return (R) = 11%
To determine: Current price of the stock. Also, determine whether this model of stock valuation is appropriate or not.
Introduction: The dividend growth model computes the stock price with the help of the growth rate, required rate, and dividend for the next period.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Most corporations pay quarterly dividends on their common stock rather than annual
dividends. Barring any unusual circumstances during the year, the board raises, lowers,
or maintains the current dividend once a year and then pays this dividend out in equal
quarterly installments to its shareholders.
a. Suppose a company currently pays an annual dividend of $3.20 on its common stock
in a single annual installment, and management plans on raising this dividend by 6.5
percent per year indefinitely. If the required return on this stock is 8 percent, what is
the current share price? (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
b. Now suppose the company in part (a) actually pays its annual dividend in equal
quarterly installments; thus, the company has just paid a dividend of $.80 per share, as
it has for the previous three quarters. What is your value for the current share price
now? (Hint: Find the equivalent annual end-of-year dividend…
Most corporations pay quarterly dividends on their common stock rather than annual
dividends. Barring any unusual circumstances during the year, the board raises, lowers,
or maintains the current dividend once a year and then pays this dividend out in equal
quarterly installments to its shareholders.
a. Suppose a company currently pays an annual dividend of $3.60 on its common stock
in a single annual installment, and management plans on raising this dividend by 3.4
percent per year indefinitely. If the required return on this stock is 10.5 percent, what is
the current share price? (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
b. Now suppose the company in (a) actually pays its annual dividend in equal quarterly
installments; thus, the company has just paid a dividend of $.90 per share, as it has for
the previous three quarters. What is your value for the current share price now? (Hint.
Find the equivalent annual end-of-year dividend…
Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders.
Suppose a company currently pays an annual dividend of $3.00 on its common stock in a single annual installment, and management plans on raising this dividend by 6.25 percent per year, indefinitely. If the required return on this stock is 9 percent, what is the current share price?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
Now suppose the company in part (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just paid a dividend of $.75 per share, as it has for the previous three quarters. What is your value for the current share price now? (Hint: Find the equivalent annual end-of-year…
Chapter 9 Solutions
CNCT ACC CORPORATE FINANCE
Ch. 9 - Stock Valuation Why does the value of a share of...Ch. 9 - Stock Valuation A substantial percentage of the...Ch. 9 - Dividend Policy Referring to the previous...Ch. 9 - Prob. 4CQCh. 9 - Common versus Preferred Stock Suppose a company...Ch. 9 - Dividend Growth Model Based on the dividend growth...Ch. 9 - Growth Rate In the context of the dividend growth...Ch. 9 - Price-Earnings Ratio What are the three factors...Ch. 9 - Prob. 9CQCh. 9 - Prob. 10CQ
Ch. 9 - Prob. 1QAPCh. 9 - Stock Values The next dividend payment by Skippy,...Ch. 9 - Prob. 3QAPCh. 9 - Stock Values Saine Corporation will pay a 3.25 per...Ch. 9 - Stock Valuation Change, Inc., is expected to...Ch. 9 - Stock Valuation Suppose you know that a companys...Ch. 9 - Prob. 7QAPCh. 9 - Prob. 8QAPCh. 9 - Growth Rate The newspaper reported last week that...Ch. 9 - Prob. 10QAPCh. 9 - Prob. 11QAPCh. 9 - Prob. 12QAPCh. 9 - Prob. 13QAPCh. 9 - Prob. 14QAPCh. 9 - Prob. 15QAPCh. 9 - Prob. 16QAPCh. 9 - Prob. 17QAPCh. 9 - Prob. 18QAPCh. 9 - Valuing Preferred Stock Fifth National Bank just...Ch. 9 - Prob. 20QAPCh. 9 - Nonconstant Growth and Quarterly Dividends...Ch. 9 - Finding the Dividend Newkirk, Inc., is expected to...Ch. 9 - Prob. 23QAPCh. 9 - Prob. 24QAPCh. 9 - Price-Earnings Ratio Consider Pacific Energy...Ch. 9 - Prob. 26QAPCh. 9 - Stock Valuation and EV FFDP Corp. has yearly sales...Ch. 9 - Stock Valuation and Cash Flows Full Boat...Ch. 9 - Prob. 29QAPCh. 9 - Prob. 30QAPCh. 9 - Nonconstant Growth Storico Co. just paid a...Ch. 9 - Prob. 32QAPCh. 9 - Prob. 1MCCh. 9 - Prob. 2MCCh. 9 - Prob. 3MCCh. 9 - Prob. 4MCCh. 9 - Prob. 5MCCh. 9 - Prob. 6MC
Knowledge Booster
Similar questions
- Some Public Companies may pay quarterly dividends on their common stock ratherthan annual dividends. The Board of Directors as dictated by cash flows can adjust or maintain the currentdividend once a year or pays a dividend based on quarterly installments to its shareholders.a) Joe Giant PLC currently pays a dividend of $4.88 on its common stock in one single annual installment. CEO of Joe’s, Mr. Jim Davis, plans on raising this dividend by 3.5% percent per year for the conceivable future. If the required return on this stock is 8.60 percent, what is the current share price? b) On the contrary, if Joe Giant PLC pays its yearly dividend in equal quarterly installments, as it has for the previous three quarters; What is your value for the current share price now? PLEASE ANSWER PART Barrow_forwardWhat impact does Target's dividendend annoucement have on it's balance sheet? Target Corporation (NYSE:TGT) recently made a dividend annoucement.The announcement read:The board of directors of Target Coporation has declared a quarterly of 90 cents per common share. The dividend is payable December 10, 2021 to shareholders of record at the close of bussiness November 17, 2021. The 4th quater dividend will be the company's 217th consecutive dividend paid since October 1967 when the company became publicly held. Questions: 1. On which date will Target record a liability for the dividend? 2.On which date will Target pay the cash dividend? 3.On the date of declaration,what will the impact (increase,decrease,noeffect) on Target's:a)assets: b)liabilities; and c)stockholders' equity? 4. On the date of payement, what will be the impact (incease,decrease,no effect)on Target's:a)assets:b)liabilities: and c0 stockholdes" equity?arrow_forwardBhupatbhaiarrow_forward
- Assume that the dividend ($3.25) on Central Power Company's common stock issue is paid annually at the end of the year. This dividend is not expected to increase for the foreseeable future. Determine the value of this stock to an investor who requires a 12 percent rate of return. A)$3.25 B)$39 C)$12 D)$27.08arrow_forwardAs the chief financial officer of Adirondack Designs, you have the following information: Next year's expected net income after tax but before new financing Sinking-fund payments due next year on the existing debt Interest due next year on the existing debt Common stock price, per share Common shares outstanding Company tax rate $ 37 million $12 million $7 million $26.5 17 million 45% a. Calculate Adirondack's times-interest-earned ratio for next year assuming the firm raises $47 million of new debt at an interest rate of 5 percent b. Calculate Adirondack's times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.0 million c. Calculate next year's earnings per share assuming Adirondack raises the $47 million of new debt d. Calculate next year's times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 1.2 million new shares at $22 a share instead of raising new debt. Note: Do not round…arrow_forwardVijayarrow_forward
- Ms. Manners Catering (MMC) has paid a constant $1.50 per share dividend to its common stockholders for the past 25 years. MMC expects to continue this policy for the next two years, and then bealin to increase the dividend at a constant rate equal to 2 percent per year into perpetuity. Investors require a 12 percent rate of return to purchase MMC's common stock What is the market value of MMC's common stock $1473 $1500 $11.54 $1530arrow_forwardXYZ Motor Corp. is all equity financed and generates perpetual annual EBIT of $300. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that XYZ has a 100% payout rate, 1,500 shares outstanding, and that shareholders require a return of 5%. Assume that the tax rate is 0%. XYZ Motor Corp. is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $4.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds with a coupon rate (and yield) of 3%. Assume that the tax rate is 0%. If XYZ Motor Corp. goes ahead with the repurchase, then what is the stock price after the repurchase is complete?arrow_forwardGeneral Accountingarrow_forward
- DIVIDENDS Brooks Sporting Inc. is prepared to report the following 2019 income statement (shown in thousands of dollars). Prior to reporting this income statement, the company wants to determine its annual dividend. The company has 320,000 shares of common stock outstanding, and its stock trades at 37 per share. a. The company had a 25% dividend payout ratio in 2018. If Brooks wants to maintain this payout ratio in 2019, what will be its per-share dividend in 2019? b. If the company maintains this 25% payout ratio, what will be the current dividend yield on the companys stock? c. The company reported net income of 1.35 million in 2018. Assume that the number of shares outstanding has remained constant. What was the companys per-share dividend in 2018? d. As an alternative to maintaining the same dividend payout ratio. Brooks is considering maintaining the same per-share dividend in 2019 that it paid in 2018. If it chooses this policy, what will be the companys dividend payout ratio in 2019? e. Assume that the company is interested in dramatically expanding its operations and that this expansion will require significant amounts of capital. The company would like to avoid transactions costs involved in issuing new equity. Given this scenario, would it make more sense for the company to maintain a constant dividend payout ratio or to maintain the same per-share dividend? Explain.arrow_forwardThe following information and questions pertain to the Central Dental Company The Central Dental Company has a preferred stock that pays a $5.5 dividend each year, and currently sells for $64.50. The company's marginal tax rate is 40 percent.The market price of the Central Dental Company's common stock is $46. The dividend to be paid at the end of the following year is $4.6 per share and is expected to continue to grow indefinitely at a constant rate of 6%.Central Dental Company’s has a before-tax cost of debt ki = 10%. Its tax rate is 40%. a) Based on the information about the Central Dental Company, what is the cost of preferred stock, kps, for Central Dental Company? SHOW YOUR CALCULATION b) Based on the information about the Central Dental Company’s common stock, calculate the cost of this common stock. SHOW YOUR CALCULATION c) Based on the information about the Central Dental Company’s before-tax cost of debt, ki and its tax rate, what is Central Dental Company’s after-tax cost of…arrow_forward9. a. Doldrums Plastics has been paying a $3 dividend each year for two years andcompany reports indicate that management intends to continue this dividendpayment for the foreseeable future. The market determined required rate ofreturn on Doldrums's common stock is 15 percent, what will be the price of a shareof stock? b. Suppose that an aggressive new Chief Executive Officer, Dee Uamoca, is hired byDoldrums. Because of the productive policies and processes instituted byUamoca, capital market investors anticipate that Doldrums's earnings anddividends will increase at a constant 8 percent rate beginning immediately. Whatwould be the price of a share of Doldrums common stock if the required rate ofreturn remains at 15 percent?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Fundamentals Of Financial Management, Concise Edi...FinanceISBN:9781337902571Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Fundamentals Of Financial Management, Concise Edi...
Finance
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning