Fundamentals of Financial Management, Concise Edition
9th Edition
ISBN: 9781337087544
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Chapter 9, Problem 6DQ
Summary Introduction
To calculate: The amount of next year dividend per share.
Introduction:
Dividends:
It refers to the return over shares that is provided to the shareholders as a part of their earnings on the shares that they have invested in a company. It is that part of the total earnings that the company distributes among its shareholders.
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Suppose that Do = $1.00 and the stock's last closing price is $15.85. It is expected that earnings and dividends will grow at a constant rate of
g = 3.50% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium,
and the most appropriate required rate of return is rs = 10.00%.
The dividend received in period 1 is D1 = $1.00 × (1+0.0350) = $1.04 and the estimated intrinsic value in the same period is based on the
D2
constant growth model: P₁: TS-8
Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period.
Activity Frame
Dividend
Price
PV
t 10.00%
Period
(Dollars)
(Dollars)
(Dollars)
0
$1.00
$15.85
1
1.03
16.46
$0.94
2
1.07
17.08
$0.97
3
1.11
17.69
$1.01
4
1.15
18.31
$0.97
5
1.19
18.92
$0.94
The dividend yield for period 1 is
and it will
The capital gain yield expected during period 1 is
and it will
each period.
each period.
If it is…
Suppose that Do = $1.00 and the stock's last closing price is $26.25. It is expected that earnings and dividends will grow at a constant rate of
g = 5.00% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium,
and the most appropriate required rate of return is rs = 9.00%.
The dividend received in period 1 is D₁ = $1.00 × (1+0.0500) = $1.05 and the estimated intrinsic value in the same period is based on the
constant growth model: P₁ = P²
Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period.
Price
(Dollars)
$26.25
PV of dividend at 9.00%
(Dollars)
Dividend
Period (Dollars)
0
$1.00
1.05
1
2
3
4
5
The dividend yield for period 1 is
The capital gain yield expected during period 1 is
4.00%
O 5.00%
and it will
9.00%
If it is forecasted that the total return equals 9.00% for the next 5 years, what is the forecasted total return out…
Suppose rRF = 6%, rM = 10%, and bi = 1.8.
What is ri, the required rate of return on Stock i? Round your answer to one decimal place.
%
1. Now suppose rRF increases to 7%. The slope of the SML remains constant. How would this affect rM and ri?
Both rM and ri will remain the same.
Both rM and ri will increase by 1 percentage point.
rM will remain the same and ri will increase by 1 percentage point.
rM will increase by 1 percentage point and ri will remain the same.
Both rM and ri will decrease by 1 percentage point.
2. Now suppose rRF decreases to 5%. The slope of the SML remains constant. How would this affect rM and ri?
Both rM and ri will remain the same.
Both rM and ri will decrease by 1 percentage point.
rM will decrease by 1 percentage point and ri will remain the same.
rM will remain the same and ri will decrease by 1 percentage point.
Both rM and ri will increase by 1 percentage point.
1. Now assume that rRF remains at 6%, but rM increases to 11%.…
Chapter 9 Solutions
Fundamentals of Financial Management, Concise Edition
Ch. 9.A - For a stock to be in equilibrium, what two...Ch. 9.A - If a stock is not in equilibrium, explain how...Ch. 9.A - RATES OF RETURN AND EQUILIBRIUM Stock Cs beta...Ch. 9.A - Prob. 2PCh. 9.A - Prob. 3PCh. 9 - It is frequently stated that the one purpose of...Ch. 9 - Is the following equation correct for finding the...Ch. 9 - Prob. 3QCh. 9 - Two investors are evaluating GEs stock for...Ch. 9 - A bond that pays interest forever and has no...
Ch. 9 - Discuss the similarities and differences between...Ch. 9 - This chapter discusses the discounted dividend and...Ch. 9 - DPS CALCULATION Weston Corporation just paid a...Ch. 9 - CONSTANT GROWTH VALUATION Tresnan Brothers is...Ch. 9 - CONSTANT GROWTH VALUATION Holtzman Clothierss...Ch. 9 - NONCONSTANT GROWTH VALUATION Holt Enterprises...Ch. 9 - CORPORATE VALUATION Scampini Technologies is...Ch. 9 - PREFERRED STOCK VALUATION Farley Inc. has...Ch. 9 - Prob. 7PCh. 9 - PREFERRED STOCK VALUATION Earley Corporation...Ch. 9 - PREFERRED STOCK RETURNS Avondale Aeronautics has...Ch. 9 - VALUATION OF A DECLINING GROWTH STOCK Maxwell...Ch. 9 - Suppose you believe that the economy is just...Ch. 9 - Prob. 12PCh. 9 - CONSTANT GROWTH You are considering an investment...Ch. 9 - NONCONSTANT GROWTH Computech Corporation is...Ch. 9 - Prob. 15PCh. 9 - NONCONSTANT GROWTH Carnes Cosmetics Co.s stock...Ch. 9 - CONSTANT GROWTH Your broker offers to sell you...Ch. 9 - NONCONSTANT GROWTH STOCK VALUATION Taussig...Ch. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - NONCONSTANT GROWTH Assume that it is now January...Ch. 9 - Comprehensive/Spreadsheet Problem NONCONSTANT...Ch. 9 - Prob. 23ICCh. 9 - Prob. 1DQCh. 9 - Prob. 2DQCh. 9 - Prob. 3DQCh. 9 - Prob. 4DQCh. 9 - Prob. 5DQCh. 9 - Prob. 6DQCh. 9 - The required return on equity, rs, is the final...Ch. 9 - Prob. 8DQCh. 9 - Prob. 9DQCh. 9 - Prob. 10DQ
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY