10 - Global Asset Federal Financial (GAFF) is expected to pay a dividend of $1.00 next...

Question

Question

10 - Global Asset Federal Financial (GAFF) is expected to pay a dividend of $1.00 next year. Dividends are then expected to g

Answer 1

Answer #1

Calculating Cost of equity using CAPM model,

Cost of Equity = 0.02 + 0.80(0.06)

Cost of Equity = 6.80%

a.

Calculating Price using DDM Model,

Stock Price = 1/(0.068 - 0.045)

Stock Price = $43.48

b.

ROE = 0.045/(1 - 0.70) = 15.00%

c.

PVGO = 43.48 - (1/0.70)/0.068

PVGO = $22.47

Answer 2

Similar Homework Help Questions

Number 9 8 - Redo Ch. 6, problem #8 assuming that all of the information is the same except tha is 14%, the standard dev...

Number 9 8 - Redo Ch. 6, problem #8 assuming that all of the information is the same except tha is 14%, the standard deviation of the stock fund is 30% and the correlation of the stock 9- US Treasuries yield 2%, the market risk premium is 5% and ABC's beta is 1.1 A What is ABC's required rate of return? B - If XYZ's required rate of return is 8.4%, what is its beta? 10 Global Asset Federal Financial...
A stock is expected to pay a dividend of $1.00 each year for the next 3 years, after that the dividend is expec...

A stock is expected to pay a dividend of $1.00 each year for the next 3 years, after that the dividend is expected to grow at a constant rate of 7% per year forever. The stock s required rate of return is 11%. What is intrinsic value of the stock today Assume that the risk-free rate is 2% and the required return of the market is 8%. What is the required return of a stock with a beta of 1.25?...
Tanrun Inc. is expected to pay an annual dividend of $0.45 per share in one year....

Tanrun Inc. is expected to pay an annual dividend of $0.45 per share in one year. Analysts expect the firm's dividends to grow by 2% forever. Its stock price is $37.6 and its beta is 0.8. The risk-free rate is 2% and the expected market risk premium is 4.5%. What is the best guess for the cost of equity? Tried with 0.0319, 0.0556 but it turns out to be wrong answers

The Francis Company is expected to pay a dividend of D1 = $1.25 per share at...

The Francis Company is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 0.85, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price?
1. ABC Corp. has an ROE (return on reinvested earnings) of 20% and a dividend payout...

1. ABC Corp. has an ROE (return on reinvested earnings) of 20% and a dividend payout ratio of 40%. The next annual earnings are expected to be $3 per share (that is, EPS in year 1 is $3.00). The firm's required return on the stock is 17%. The value of the stock today is $____________. 2. Company A just paid a $1.00 dividend per share and its future dividends are expected to grow at an annual rate of 6% for the...
1. ABC Corp. has an ROE (return on reinvested earnings) of 20% and a dividend payout...

1. ABC Corp. has an ROE (return on reinvested earnings) of 20% and a dividend payout ratio of 40%. The next annual earnings are expected to be $3 per share (that is, EPS in year 1 is $3.00). The firm's required return on the stock is 17%. The value of the stock today is $____________. 2. Company A just paid a $1.00 dividend per share and its future dividends are expected to grow at an annual rate of 6% for the...

A company will pay a dividend of $1.25 next year. The dividend is expected to grow at...

A company will pay a dividend of $1.25 next year. The dividend is expected to grow at a constant rate of 4.5% into the foreseeable future. The current stock price is $22.90 per share. What are the stock’s expected dividend yield AND its expected total return for the coming year? a. 4.26% and 4.50% b. 6.25% and 10.75% c. 5.46% and 9.96% d. 4.26% and 8.76% e. 5.46% and 4.50%
A company will pay a dividend of $1.25 next year. The dividend is expected to grow at...

A company will pay a dividend of $1.25 next year. The dividend is expected to grow at a constant rate of 4.5% into the foreseeable future. The current stock price is $22.90 per share. What are the stock’s expected dividend yield AND its expected total return for the coming year? a. 5.46% and 9.96% b. 4.26% and 8.76% c. 6.25% and 10.75% d. 4.26% and 4.50% e. 5.46% and 4.50%
Oxxon Furniture is expected to pay a dividend of D1 = $1.25 per share at the...

Oxxon Furniture is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 5.00% per year in the future. The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is Oxxon's current stock price? $21.62 $23.45 $25.12 $28.90 $31.90

Zombie Manufacturing Company is expected to pay a dividend of $3.44 in the upcoming year. Dividends...

Zombie Manufacturing Company is expected to pay a dividend of $3.44 in the upcoming year. Dividends are expected to grow at 5.9% per year. The risk-free rate of return is 2%, and the expected return on the market portfolio is 9.2%. Investors use the CAPM to compute the market capitalization rate and use the constant-growth dividend discount model to determine the value of the stock. The stock's current price is $99. What is your estimate for the market capitalization rate...