Question

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a.)

Nonconstant Dividend Growth Valuation

A company currently pays a dividend of $3.2 per share (D₀ = $3.2). It is estimated that the company's dividend will grow at a rate of 15% per year for the next 2 years, and then at a constant rate of 7% thereafter. The company's stock has a beta of 1.3, the risk-free rate is 10%, and the market risk premium is 5.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.

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b.)

Return on Common Stock You buy a share of The Ludwig Corporation stock for $22.10. You expect it to pay dividends of $1.02, $1.0781, and $1.1396 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $26.10 at the end of 3 years. Calculate the growth rate in dividends. Round your answer to two decimal places.   %5.70 Calculate the expected dividend yield. Round your answer to two decimal places.   %4.62 Assuming that the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to obtain the expected total rate of return. What is this stock's expected total rate of return (assume market is in equilibrium with the required rate of return equal to the expected return)? Do not round intermediate calculations. Round your answer to two decimal places.   % I NEED THIS ANSWER ( number 3)

Answer 1

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? v I . * ENG 23:38 30-01-2020 11 V903 x fe U V W NON CONSTANT AA AB - 903 904 905 906 ke = ke = ke = Rf + beta(Rm-Rf) 10% + 1.3(5.5%) 17.15% REQUIRED RATE OF RETURN DZ D3 907 908 909 910 911 912 913 914 915 916 917 918 3.2 3.6800 (3.2*(1+0.15)] 4.2320 (3.68*(1+0.15)] 4.5282 (4.232*(1+0.07)] g=7%, ke =17.15% P2= D3/(ke-g) = 4.5282/(0.1715-0.07) = PRICE OF STOCK TODAY pv factor AT 17.15% D+P PV FACTOR @17.15% 919 920 1 D1 2 D2 + P2 CURRENT PRICE = 3.6800 48.8452 PO = 0.853606 0.728644 PV OF ALL CASH FLOW A*B 3.14 35.59 38.73 921 1/(1+0.1715)^1 1/(1+0.1715)^2 922 923 ANSWER: 38.73 924 925 926 ... UTILITY, SHARPE, beta convexity DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PV, FV, ANNUITY DIR right clean YIELD bond portf ...

12 e 9 w ? v 23:39 ENG 30-01-2020 11 X KD22 κo KD KE KE KG KH KI LUDWIG PO = 22.10 1.02 PV 1.0781 1.1396 FV 1.02 1.1396 FV= n = 5.70% (=RATE(KB11,,-KB9,KB10)] GROWTH RATE IN DIVIDENDS = 5.7003% 5.70% 14 a 15 16 b EXPECTED DIVIDEND YIELD = 4.6154% 4.62% [D1/PO = 1.02/22.10] EXPECTED TOTAL RETURN = DIVIDEND YIELD + GROWTH RATE EXPECTED TOTAL RETURN = 5.7003% + 4.6154% = 10.3157% 10.32% [rounded to 2 decimals] ... UTILITY, SHARPE, beta convexity DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PV, FV, ANNUITY DIR right clean YIELD bond portf ... ►