Question 2 (1 point): Gamma Inc. is a mature manufacturing firm. The company just paid a $9.40 dividend, but management expects to reduce the payout by 4 percent per year indefinitely. If you require a 10 percent return on this stock, what will you pay for a share today? Show your calculation steps clearly. Current Dividend Dividend growth rate Required return Share price today $ 9.40 -4.0% 10.0%

Question 2 (1 point): Gamma Inc. is a mature manufacturing firm. The company just paid a $9.40 dividend, but management expects to reduce the payout by 4 percent per year indefinitely. If you require a 10 percent return on this stock, what will you pay for a share today? Show your calculation steps clearly. Current Dividend Dividend growth rate Required return Share price today $ 9.40 -4.0% 10.0%

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 24P: Conroy Consulting Corporation (CCC) has a current dividend of D0 = $2.5. Shareholders require a 12%...

See similar textbooks

Similar questions

Assume that Temp Force is a constant growth company whose last dividend (D0, which was paid yesterday) was 2.00 and whose dividend is expected to grow indefinitely at a 6% rate. (1) What is the firms current estimated intrinsic stock price? (2) What is the stocks expected value 1 year from now? (3) What are the expected dividend yield, the expected capital gains yield, and the expected total return during the first year?
Calculation of gL and EPS Spencer Suppliess stock is currently selling for 60 a share. The firm is expected to earn 5.40 per share this year and to pay a year-end dividend of 3.60. a. If investors require a 9% return, what rate of growth must be expected for Spencer? b. If Spencer reinvests earnings in projects with average returns equal to the stocks expected rate of return, then what will be next years EPS? [Hint: gL = ROE Retention ratio.)
COST OF COMMON QUITY The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 6% per year. Callahan’s common stock currently sells for $22.00 per share, its last dividend was $2.00, and it will pay a $2.12 dividend at the end of the current year. 1. Using the CDF approach, what is its cost of common equity? 2. What is youe estimate of Callahan's cost of common equity
Please answer questions 3/4 PLEASE ! The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per year. Callahan's common stock currently sells for $24.00 per share; its last dividend was $1.80; and it will pay a $1.89 dividend at the end of the current year. Using the DCF approach, what is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. 12.88 % If the firm's beta is 1.8, the risk-free rate is 4%, and the average return on the market is 14%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places. 22 % If the firm's bonds earn a return of 12%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the judgmental risk premium of 4% in your calculations. Round your answer to two decimal places. % 16.96? If you have equal confidence in the inputs used for the three approaches, what is your…
If the last dividend paid by Chemical Brothers Inc. was $1.25 and analysts expect these payments to increase 4% per year, what will the stock price be next year if the required return is 15%? Select one: O a. $12.29 O b. $11.82 O c. $31.25 O d. $12.78 O e. $23.11
Question No 3 (part i) (remaining part) Answer the following. i) The future earnings, dividends, and common stock price of Nabeel Inc. are expected to grow 7% per year. Common stock currently sells for $23.00 per share; its last dividend was $2.00. d) If you have equal confidence in the inputs used for the three approaches, what is your estimate of cost of common equity?
tes Company Z-prime's earnings and dividends per share are expected to grow by 5% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next year's dividend is $10, the cost of equity is 8%, and next year's EPS is $15. What is Z- prime's stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price
Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $2.00 and it expects dividends to grow at a constant rate g = 4.9%. The firm's current common stock price, P0, is $23.50. If it needs to issue new common stock, the firm will encounter a 4.9% flotation cost, F. Assume that the cost of equity calculated without the flotation adjustment is 12% and the cost of old common equity is 11.5%. What is the flotation cost adjustment that must be added to its cost of retained earnings? Do not round intermediate calculations. Round your answer to two decimal places. % What is the cost of new common equity considering the estimate made from the three estimation methodologies? Do not round intermediate calculations. Round your answer to two decimal places. %
Question: Hart Enterprises recently paid a dividend of $1.25. It expects to have non constant growth of 20% for 2 years followed by a constant rate of 5% thereafter. The firm's required return is 10%. a. How far away is the terminal, or horizon, date? b. What is the firm's horizon, or terminal, value? c. What is the firm's intrinsic value today?
Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $1.70 and it expects dividends to grow at a constant rate gL = 5%. The firm's current common stock price, P0, is $23.60. If it needs to issue new common stock, the firm will encounter a 5.7% flotation cost, F. Assume that the cost of equity calculated without the flotation adjustment is 12% and the cost of old common equity is 11.5%. What is the flotation cost adjustment that must be added to its cost of retained earnings? Round your answer to 2 decimal places. Do not round intermediate calculations. % What is the cost of new common equity? Round your answer to 2 decimal places. Do not round intermediate calculations. %
Suppose that a company's most recent dividends per share paid upon the last year's net income was $1.6 . The share price of the company is fairly valued in the market at $10 . The expected dividend growth rate is 2% in perpetuity. Given that the risk-free rate is 3% and market risk premium is 10%, what happens to the share prices when the whole market increases by 10%? a) increase by 15.32%b) increase by 15.00%c) increase by 11.79%d) increase by 21.89%e) other
Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $2.50 and it expects dividends to grow at a constant rate g = 4.9%. The firm's current common stock price, PO, is $20.00. If it needs to issue new common stock, the firm will encounter a 5.3% flotation cost, F. What is the flotation cost adjustment that must be added to its cost of retained earnings? Do not round intermediate calculations. Round your answer to two decimal places. % What is the cost of new common equity considering the estimate made from the three estimation methodologies? Do not round intermediate calculations. Round your answer to two decimal places.