Two stage Dividend Discount Model DDM
This model is designed to value the equity in a firm, with two stages of growth, an initial period of higher growth and a subsequent period of stable growth.
Assumptions
please explain and show the formulas Question 1 (30 marks) The following information is obtained from...
please explain and show the formulas
Question 2-2 Parts (14+6= 20 marks) Part 1. Working as a junior analyst for mutual fund, you wonder if your fund should consider adding ABC Food, a large food chain, to your share portfolio. You obtain the following information from its latest financial statements and other sources: $ 100 Earnings: Book value of Equity: $1,000 Dividends: $ 80 You forecast that its earnings will grow by 10% next year and then by 5% per...
please show the calculation process
Qantas has experienced significant changes in the past few years. Its earnings per share increased from -128 cents in 2014 to 46 cents in 2017, and its share price also grew from about $1 in 2014 to over $5 in 2017. Assume that at the end of 2018, Qantas reported in its annual reports that its book value of equity was $200. An analyst forecasts that Qantas will have a ROE of 12%, a cost...
An analyst uses the constant growth model to evaluate a company with the following data for a company: Leverage ratio (asset/equity): 1.8 Total asset turnover: 1.5 Current ratio: 1.8 Net profit margin: 8% Dividend payout ratio: 40% Earnings per share in the past year: $0.85 The required rate on equity: 15% Based on an analysis, the growth rate of the company will drop by 25 percent per year in the next two years and then keep it afterward. Assume that...
You have been appointed as a financial consultant cost of capital of the company, (25 Marks) the directors of ABC Limited. They require you to calculate the The following information is available available on the capital structure of the company 1 500 000 Ordinary shares, with a market price and the return on the market is 15%. price of R3 per share. The beta of the company is 1.8, a risk-free rate of 1 000 000 12%, R1 Preference share...
(20 marks) Question 2 on company has asked its chief financial officer to measure the of each specific form of capital as well as its weighted average cost of asured using the following weights A construction cost capital. The weighted average cost is mea term debt, 10% preferred stock and 50% common stock equity. The company's tax rate is 40%. Debt Company selles $980, a 10 year, $1,000 par value bond that pays a 10% coupon rate annually. Floatation cost...
1 You are given the following information the "Gotta Have It Company" Dividend in the Current Year = $1.55 Expected growth rate of Dividend over the next 5 years is 6.50% Expected growth rate of the Dividend in the Residual Period (beyond forecast year 5) is 5.00% 2 You are given the following market information Risk Free Rate of interest is 2.25% Equity Market Risk Premium is 7.00% The Gotta Have It Company has a Beta of 1.20 3 You...
Question 2 Potter plc (Potter) is preparing to make a bid to buy a rival unlisted company, Weasley Ltd (Weasley), which operates in the same business sector. Relevant financial information for both companies is as follows: Potter Weasley PIC £m 46 13 Ordinary share capital (nominal value £1) 7% bonds, redeemable at par in four years' time Potter has an equity beta of 1.2. The risk-free rate of return is 2.5% and the average retum on the market is 7.5%....
c and d please
Problem 2 (15 marks) The Weatherfield Way Construction Company has common and preferred stock outstanding. The preferred stock pays an annual dividend of $7.50 per share, and the required rate of return for similar preferred stocks is 11%. The common stock paid a dividend of $3.00 per share last year, but the company expected that earnings and dividends will grow by 25% for the next two years before dropping to a constant 9% growth rate afterward....
1) An analyst gathered the following financial information about a firm: Estimated (next year’s) EPS $10 per share Dividend payout ratio 40% Required rate of return 12% Expected long-term growth rate of dividends 5% What is the analysts’ estimate of intrinsic value? Show work. 2) An analyst has made the following estimates for a stock: dividends over the next year $.60 long-term growth rate 13% Intrinsic value $24 per share The current price of the shares is $22. Assuming the...
Question 5 (20 marks) Part A (13 marks) The Rockwood Co. just paid a dividend of 1.5 per share of stock. The following table lists the Rockwood Co.’s earnings per share and dividend per share over time. a) Assume the company strictly follows the Lintner model to develop its dividend payout policy. Please fill in the following table and show your steps according to Lintner model (Calculate the dividend three/four/five year from now). b) Is dividend changes lead or lag...