When deriving the equity value of a firm, an analyst forecasts the real dividends expected to be paid in the future. In this case, which discount rate should be used?
A. The nominal rate of return
B. The real rate of return
C. The risk free rate of return
D. The risk adjusted rate of return
Option B is correct
Real dividends are inflation adjusted returns. Thus the rate also needs to inflation adjusted. Hence real rates will be used.
When deriving the equity value of a firm, an analyst forecasts the real dividends expected to...
· An analyst forecasts to have expected dividends of $.75 one year from now for Turtle Company. The dividends are expected to grow at 12% per year thereafter until the fourth year. After the fourth year the dividends will grow at a constant rate of 2% per year. Equity Cost of Capital is 5% Re. Calculate the current stock price P0 using the Dividend Discount Model modified formula with (DivN+1/Re-G) on the end resulting in Pn Stock Price.
Consider an all‐equity firm with EBIT of $10MM, expected to stay at that level over time. There is no depreciation and no investment: all after‐tax earnings paid as dividends. The current market capitalization is $100MM. There are 10MM shares, which are priced at $10 per share. The corporate tax rate is 30%. a. What are the after‐tax earnings? b. What is the discount rate the market uses to value equity cash flows? c. If there were no taxes, what value...
1) An analyst forecasts to have expected dividends of $3.15 year 1 (Divl), S3.50 year 2 (Div2), S3.85 year 3 (Div3), and S4.20 year 4 (Div4) for Bear Company. The stock price is estimated to be $18.00 in year 4. Equity Cost of Capital (Re) is 7.00% Calculate the current stock price P0 using the Dividend Discount Model . 2) An analyst forecasts to have expected dividends of $5.00 year 1 (Divl), S5.20 year 2 (Diy2), $5.40 year 3 (DİV3),...
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...
Suppose the risk-free rate is 3.55% and an analyst assumes a market risk premium of 6.21%. Firm A just paid a dividend of $1.19 per share. The analyst estimates the β of Firm A to be 1.47 and estimates the dividend growth rate to be 4.03% forever. Firm A has 268.00 million shares outstanding. Firm B just paid a dividend of $1.59 per share. The analyst estimates the β of Firm B to be 0.71 and believes that dividends will...
Based on the below information, the value of the firm is closest to: A stock analyst collected the following information about ABC Inc.: - The firm required rate of return on equity is 17% and its WACC is estimated at 14%. - Based a thorough forecast, the analyst estimates for the free cash flows to the firm for the next two years are 820,000 and 970,000 respectively. His estimates for the free cash flows to equity are however: 550,000 and...
Southern Imports is an all-equity firm with a beta of 1.32. The firm is considering a new project that entails less risk than its current operations and thus management feels that the firm's beta should be lowered by .18 when assigning a discount rate to this project. The market rate of return is 9.4 percent and the risk-free rate is 2.8 percent. What discount rate should be assigned to this project? Group of answer choices A. 11.46 percent B. 11.21...
The total market value of Okefenokee Real Estate Company’s equity is $6 million, and the total value of its debt is $4 million. The treasurer estimates that the beta of the stock currently is 1.5 and that the expected risk premium on the market is 10%. The Treasury bill rate is 6%, and investors believe that Okefenokee's debt is essentialy free of default risk. a. What is the required rate of return on Okefenokee stock? (Do not round intermediate calculations....
A firm is expected to pay a dividend of $6 in the upcoming year. Dividends are expected to decline at the rate of 3% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The stock has a beta of 0.5. Using the constant-growth DDM, the intrinsic value of the stock is ________. $100 $50 $200 $150
The equity beta of a firm that is financed with 45% debt and 55% equity is 1.1. The beta of the debt is 0.3. The expected return on the market is 11%, and the risk -free rate is 3%. What rate of return should this firm require on its projects? I get 12.1% but the following are the options: A. 14% B. 8.9% C. 15.1% D. -36.5%