Answer (a):
Working:
D0 = $2.85
D1 = 2.85 * (1 + 14%) = $3.2490 = $3.25
D2 = 3.2490 * (1 + 14%) = $3.7039 = $3.70
D3 = 3.7039 * (1 + 14%) = $4.2224 = $4.22
D4 = 4.2224 * (1 + 14%) = $4.8135 = $4.81
D5 = 4.8135 * (1 + 14%) = $5.4875 = $5.49
Answer (b):
Working:
Above excel with 'show formula' is as follows:
Answer c (i):
Working:
P1 = 3.7039 / (1 + 15%) + 4.2224 / (1 + 15%)^2 + 4.8135 / (1 + 15%)^3 + 90.1507 / (1 + 15%)^4
= $61.1224
Dividend Yield = D1 / P0 = 3.2490 / 55.98 = 5.80%
Capital gain yield = (P1 - P0) / P0 = (61.1224 - 55.9751) / 55.9751 = 9.20%
Total return = 5.80% + 9.20% = 15.00%
Answer c (ii):
Working:
P4 = 90.1507 / (1 + 15%) = $78.3919
Dividend yield = D 5 / P4 = 5.4874 / 78.3919 = 7.00%
Capital gains yield = (P5 - P4) / P4 = (84.66 - 78.3919) / 78.3919 = 8.00%
Total return = 7% + 8% = 15.00%
Answer d:
Correct answer is:
II. If the price as estimated by the marginal investor differs from the market price, then investors will buy or sell until an equilibrium has been established, with the intrinsic value as estimated by the marginal investor equals the actual market price.
Explanation:
If actual price < Intrinsic value, stock is undervalued marginal investor will buy it until an equilibrium has been established.
If actual price > Intrinsic value, stock is overvalued investor will sell it until an equilibrium has been established.
As such option II is correct and other options I, III and IV are incorrect.
Relzenstein Technologies (RT) has just developed a solar panel capable of generating 200% more electricity than...
Problem 7-20 Nonconstant Growth Stock Valuation Reizenstein Technologies (RT) has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, RT is expected to experience a 14% annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology, and RT's growth rate will slow to 7% per year indefinitely. Stockholders require a return of 12% on RT's stock....
Problem 7-20 Nonconstant Growth Stock Valuation Reizenstein Technologies (RT) has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, RT is expected to experience a 14% annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology, and RT's growth rate will slow to 5% per year indefinitely. Stockholders require a return of 12% on RT's stock....
Nonconstant Growth Stock Valuation Reizenstein Technologies (RT) has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, RT is expected to experience a 14% annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology, and RT's growth rate will slow to 8% per year indefinitely. Stockholders require a return of 11% on RT's stock. The most...
Rocking technologies RT has just developed a sokar panel capable of generating 200% more electricity than amy solar panel currently on the market. As a result, RT is exoected to experience a 15% annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology and RT’s growth rate will slow to 5% per year indefinitely. Stockholders require a return of 6% on the stock. The most recent dividend was paid...
Assume that it is now January 1, 2017. Wayne-Martin Electric Inc. (WME) has developed a solar panel capable of generating 200% more electricity than any other solar panel currently on the market. As a result, WME is expected to experience a 14% annual growth rate for the next 5 years. Other firms will have developed comparable technology by the end of 5 years, and WME's growth rate will slow to 4% per year indefinitely. Stockholders require a return of 12%...
Help! Assume that it is now January 1, 2019. Wayne-Martin Electric Inc. (WME) has developed a solar panel capable of generating 200% more electricity than any other solar panel currently on the market. As a result, WME is expected to experience a 14% annual growth rate for the next 5 years. Other firms will have developed comparable technology by the end of 5 years, and WME's growth rate will slow to 6% per year indefinitely. Stockholders require a return of...
Swink Electric, Inc., has just developed a solar panel capable of generating 200 percent more electricity than any solar panel currently on the market. As a result, Swink is expected to experience a 15 percent annual growth rate for the next five years. When the five-year period ends, other firms will have developed comparable technology, and Swink’s growth rate will slow to 5 percent per year indefinitely. Stockholders require a return of 12 percent on Swink’s stock. The firm’s most...
Need help on finance! Assume that it is now January 1, 2019. Wayne-Martin Electric Inc. (WME) has developed a solar panel capable of generating 200% more electricity than any other solar panel currently on the market. As a result, WME is expected to experience a 14% annual growth rate for the next 5 years. Other firms will have developed comparable technology by the end of 5 years, and WME's growth rate will slow to 6% per year indefinitely. Stockholders require...
eBook Taussig Technologies Corporation (TTC) has been growing at a rate of 20% per year in recent years. This same growth rate is expected to last for another 2 years, then decline to gn = 5%. If D0 = $2.50 and rs = 11%, what is TTC's stock worth today? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is its expected dividend yield at this time, that is, during Year 1? Do not round...
Taussig Technologies Corporation (TTC) has been growing at a rate of 15% per year in recent years. This same growth rate is expected to last for another 2 years, then decline to On = 5%. a. If Do = $1.00 and is = 13%, what is TTC's stock worth today? Do not round intermediate calculations. Round your answer to the nearest cent. What is its expected dividend yield at this time, that is, during Year 17 Do not round intermediate...