Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259277214
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 7, Problem 24QP
Negative Growth. According to the 2015 Value Line Investment Survey, the growth rate in dividends for Alcoa for the previous 10 years has been negative 15 percent. If investors feel this growth rate will continue, what is the required return for Alcoa stock? Does this number make sense? What are some of the potential reasons for the negative growth in dividends?
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DAS Co. is preparing its financial forecast for next year and its AFN is negative. This means that
Select one:
O a. the predicted change in total assets must be negative.
O b. sales growth must be negative.
O c. the dividend payout ratio must be greater than the predicted growth rate in sales.
O d. the predicted change in spontaneous liabilities must be greater than the predicted change in
total assets.
9.
As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company’s stock.
Consider the case of Portman Industries:
Portman Industries just paid a dividend of $3.12 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 16.00% over the next year. After the next year, though, Portman’s dividend is expected to grow at a constant rate of 3.20% per year.
Assuming that the market is in equilibrium, use the information just given to complete the table.
Term
Value
Dividends one year from now (D₁)
Horizon value (Pˆ1P̂1)
Intrinsic value of Portman’s stock
The risk-free rate (rRFrRF) is 4.00%, the market…
You have collected the following information regarding Impi industrula Corporation's historical earnings per share.
2012 =R12.36
2013= R13.60
2014 =R15.82
2015= R17.80
2016= R20.90
2017 = R21.78
Based on your analysis of Impu's fundamentals you estimate that the firm's earnings will continue to grow at its average historical growth rate for the next year but that in the following year, as a result of the launch of a new product the form is currently developing, earnings will grow at a rate of 20% per year for two years. After this, you project that the earnings growth rate will decrease by 5% per year for the next two years, to its long term sustainable rate. You project that the firm will maintain a 50% dividend pay-out ratio and that the appropriate market capitalization rate for Impi Industrial Corporation is 15%. What action would yoh take if the firm's shares are currently trading at R620 per share?
Chapter 7 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 7.1 - What are the relevant cash flows for valuing a...Ch. 7.1 - Does the value of a share of stock depend on how...Ch. 7.1 - What is the value of a share of stock when the...Ch. 7.1 - What is a target price on a stock? How is it...Ch. 7.2 - Prob. 7.2ACQCh. 7.2 - Prob. 7.2BCQCh. 7.2 - Why is preferred stock called preferred?Ch. 7.3 - Prob. 7.3ACQCh. 7.3 - Prob. 7.3BCQCh. 7.3 - Prob. 7.3CCQ
Ch. 7.3 - Prob. 7.3DCQCh. 7 - Section 7.1What is the total return for a stock...Ch. 7 - Prob. 7.2CCh. 7 - LO1 7.1.Stock Valuation. Why does the value of a...Ch. 7 - LO1 7.2.Stock Valuation. A substantial percentage...Ch. 7 - Dividend Policy. Referring to the previous...Ch. 7 - LO1 7.4.PRINTED BY: V.SwathiPpfeya@spi-global.com....Ch. 7 - LO1 7.5.Common versus Preferred Stock. Suppose a...Ch. 7 - Prob. 6CTCRCh. 7 - Prob. 7CTCRCh. 7 - LO1 7.8.Dividends and Earnings. Is it possible for...Ch. 7 - Prob. 9CTCRCh. 7 - Prob. 10CTCRCh. 7 - Prob. 11CTCRCh. 7 - Prob. 12CTCRCh. 7 - Prob. 13CTCRCh. 7 - Prob. 14CTCRCh. 7 - Stock Values. Gilmore, Inc., just paid a dividend...Ch. 7 - Stock Values. The next dividend payment by Dizzle,...Ch. 7 - Prob. 3QPCh. 7 - Stock Values. Take Time Corporation will pay a...Ch. 7 - Stock Valuation. Mitchell, Inc., is expected to...Ch. 7 - Stock Valuation. Suppose you know that a companys...Ch. 7 - Stock Valuation. Burkhardt Corp. pays a constant...Ch. 7 - Valuing Preferred Stock. Smiling Elephant, Inc.,...Ch. 7 - Prob. 9QPCh. 7 - Growth Rates. The stock price of Baskett Co. is 73...Ch. 7 - Valuing Preferred Stock. E-Eyes.com has a new...Ch. 7 - Stock Valuation. Wesen Corp. will pay a dividend...Ch. 7 - Prob. 13QPCh. 7 - Prob. 14QPCh. 7 - Nonconstant Growth. Metallica Bearings, Inc., is a...Ch. 7 - Nonconstant Dividends. Hot Wings, Inc., has an odd...Ch. 7 - Nonconstant Dividends. Apocalyptica Corporation is...Ch. 7 - Supernormal Growth. Burton Corp. is growing...Ch. 7 - Negative Growth. Antiques R Us is a mature...Ch. 7 - Finding the Dividend. Gontier Corporation stock...Ch. 7 - LO3 21. PRINTED BY: V.SwathiPpreya@spi-gIobal.com....Ch. 7 - Stock Valuation. According to the 2015 Value Line...Ch. 7 - Prob. 23QPCh. 7 - Negative Growth. According to the 2015 Value Line...Ch. 7 - Prob. 25QPCh. 7 - Stock Valuation and PE. Sully Corp. currently has...Ch. 7 - Stock Valuation and PE. You have found the...Ch. 7 - Prob. 28QPCh. 7 - Stock Valuation and PE. Davis, Inc., currently has...Ch. 7 - PE and Terminal Stock Price. In practice, a common...Ch. 7 - Capital Gains versus Income. Consider four...Ch. 7 - Stock Valuation. Most corporations pay quarterly...Ch. 7 - Prob. 1CCCh. 7 - Prob. 2CC
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