Required Return, r = Dividend Yield + Growth Rate
Required Return, r = 5% + 7%
Required Return, r = 12%
D0 = $1.50
Growth rate during next two years is 50% and 30%, followed by a constant growth rate (g) of 7%
D1 = $1.50 * 1.50
D1 = $2.25
D2 = $2.25 * 1.30
D2 = $2.925
D3 = $2.925 * 1.07
D3 = $3.12975
P2 = D3 / (r - g)
P2 = $3.12975 / (0.12 - 0.07)
P2 = $62.595
P0 = $2.25 / 1.12 + $2.925 / 1.12^2 + $62.595 / 1.12^2
P0 = $54.24
So, estimated value per share is $54.24
Problem 7-12 Question 12 of 21 Check My Work eBook Problem Walk-Through Problem 7-12 Nonconstant Growth...
Problem 7-12 Nonconstant Growth Stock Valuation Assume that the average firm in your company's industry is expected to grow at a constant rate of 6% and that its dividend yield is 8%. Your company is about as risky as the average firm in the industry and just paid a dividend (D0) of $3. You expect that the growth rate of dividends will be 50% during the first year (g0,1 = 50%) and and 25% during the second year (g1,2 =...
Problem 8-13 (Nonconstant Growth Stock Valuation) Question 1 of 3 Check My Work (2 remaining) eBook Problem Walk-Through Nonconstant Growth Stock Valuation Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.50 coming 3 years from today. The dividend should grow rapidly - at a rate of 80% per year - during Years 4 and 5....
9. Problem 8-13 (Nonconstant Growth Stock Valuation) eBook Problem Walk-Through Nonconstant Growth Stock Valuation Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.00 coming 3 years from today. The dividend should grow rapidly - at a rate of 65% per year-during Years 4 and 5. After Year 5, the company should grow at a constant...
12. Problem 9.14 (Nonconstant Growth) eBook Problem Walk-Through Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Computech to begin paying dividends, beginning with a dividend of $1.75 coming 3 years from today. The dividend should grow rapidly - at a rate of 48% per year - during Years 4 and 5, but after Year 5, growth should be a constant 4% per year. If the...
ebook Problem Walk Through Nonconstant Growth Stock Valuation Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.00 coming 3 years from today. The dividend should grow rapidly - at a rate of 80% per year during Years 4 and 5. After Year 5, the company should grow at a constant rate of 5% per year....
Question 708 Check My Work (1 remaining) Problem 9-4 Nonconstant growth valuation Holt Enterprises recently paid a dividend, Do, of $4.00. It expects to have nonconstant growth of 15% for 2 years followed by a constant rate of 10 thereafter. The firm's required return is 13%. a. How far away is the horizon date? 1. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero. II. The terminal, or horizon, date...
Check My Work eBook Problem Walk-Through Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Computech to begin paying dividends, beginning with a dividend of $1.75 coming 3 years from today. The dividend should grow rapidly - at a rate of 33% per year - during Years 4 and 5, but after Year 5, growth should be a constant 10% per year. If the required return...
problems a and b Check My Work eBook Problem Walk-Through Investors require an 8% rate of return on Mather Company's stock (i.e., Is 8%). a. What is its value if the previous dividend was Do = $2.75 and investors expect dividends to grow at a constant annual rate of (1) -5%, (2) 0%, (3) 2%, or (4) 7%? Do not round intermediate calculations. Round your answers to the nearest cent. (1) $ (2) $ (3) $ (4) $ b. Using...
Check My Work (am 9-6: Valuing Nonconstant Growth Stocks Nonconstant growth valuation Hart Enterprises recently paid a dividend, Do. of $2.25. It expects to have no constant growth of 22 for 2 years followed by a constantmate of the The 's more 114 a. How far away is the horizon date? 1. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2 11. The terminal, or horizon, date...
Keep the Highest: 0/1 0 Attempts: 3. Problem 8-05 (Nonconstant Growth Valuation) eBook Nonconstant Growth Valuation A company currently pays a dividend of $2 per share (Do= $2) . It is estimated that the company's dividend will grow at a rate of 16 % per year for the next 2 years, and then at a constant rate of 5 % thereafter. The company's stock has a beta of 1.7, the risk-free rate is 9.5 % , and the market risk...