Corporate Finance
34. Stock Valuation Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders a. Suppose a company currently pays a $3.20 annual dividend on its common stock in a single annual installment, and management plans on raising this dividend by Chapter 9 Stock Valuation 303 5 percent per year indefinitely. If the required return on this stock is 11 percent, what is the current share price? b. Now suppose that the company in (a) actually pays its annual dividend in equal quarterly installments; thus, this company has just paid a dividend of S.80 per share, as it has for the previous three quarters. What is your value for the current share price now? (Hint: Find the equivalent annual end-of-year dividend for each year.) Comment on whether or not you think that this model of stock valuation 1S appropriate.
Homework Answers
Problem 6-34 Stock Valuation Most corporations pay quarterly dividends on their common stock rather than annual...
Problem 6-34 Stock Valuation Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders. a. Suppose a company currently pays an annual dividend of $2.80 on its common stock in a single annual installment, and management plans on raising this dividend by 5 percent per...
Problem 6-34 Stock Valuation Most corporations pay quarterly dividends on their common stock rather than annual...
Problem 6-34 Stock Valuation Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders. a. Suppose a company currently pays an annual dividend of $2.50 on its common stock in a single annual installment, and management plans on raising this dividend by 4 percent per...
Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual...
Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders. a. Suppose a company currently pays an annual dividend of $6.00 on its common stock in a single annual installment, and management plans on raising this dividend by 5 percent per year indefinitely. If the...
Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual ci...
Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders. a. Suppose a company currently pays an annual dividend of $3.60 on its common stock in a single annual installment and management plans on raising this dividend by 2 percent per year, indefinitely. If the...
Suppose that a firm always announces a yearly dividend at the end of the first quarter...
Suppose that a firm always announces a yearly dividend at the end of the first quarter of the year, but then pays the dividend out as four equal quarterly payments. If the next such "annual" dividend has been announced as $6, it is exactly one quarter until the first quarterly dividend from that $6, the effective annual required rate of return on the company's stock is 17 percent, and all future "annual" dividends are expected to grow at 6 percent...
What is the value of a preferred stock when the dividend rate is 16 percent on a $75 par value?
Problem 8-1(Preferred stock valuation) What is the value of a preferred stock when the dividend rate is 16 percent on a $75 par value? The appropriate discount rate for a stock of this risk level is 14 percent. The value of the preferred stock is _______ . (Round to the nearest cent.)(Preferred stock valuation) The preferred stock of Gandt Corporation pays a $0.50 dividend. What is the value of the stock if your required return is 11 percent? The value of the...
Bookmatch 8-14 (book/static) Question Help (Measuring growth) Given that a firm's return on equity is 18...
Bookmatch 8-14 (book/static) Question Help (Measuring growth) Given that a firm's return on equity is 18 percent and management plans to retain 40 percent of earnings for investment purposes, what will be the firm's growth rate? The firm's growth rate will be 96. (Round to two decimal places.) (Common stock valuation) Sanford common stock is expected to pay $1.85 in dividends next year, and the market price is projected to be $51.35 per share by year-end. If investors require a...
A company's stock pays an annual dividend that is expected to increase by 9% annually. The...
A company's stock pays an annual dividend that is expected to increase by 9% annually. The stock commands a market rate of return of 12% and sells for $60.50 a share. What is the expected amount of the next dividend to be paid on the stock? Battery Co. will pay an annual dividend of $2.08 a share on its common stock next year. Last week, the company paid a dividend of $2.00 a share. The company adheres to a constant...
Corporate Finance
Growth Opportunities Lewin Skis, Inc., today expects to earn $8.50 per share for each of the future operating periods (beginning at Time 1), today if the firm makes no new investments and returns the earnings as dividends to the shareholders. However, Clint Williams, president and CEO, has discovered an opportunity to retain and invest 20 percent of the earnings beginning three years from today. This opportunity to invest will continue for each period indefinitely. He expects to earn 10 percent...
Corporate Finance
Storico Co. just paid a dividend of $3.85 per share. The company
will increase its dividend by 20 percent next year and will then
reduce its dividend growth rate by 5 percentage points per year
until it reaches the industry average of 5 percent dividend growth,
after which the company will keep a constant growth rate forever.
If the required return on Storico stock is 13 percent, what will a
share of stock sell for today?
Problem 6-34 Stock Valuation Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders. a. Suppose a company currently pays an annual dividend of $2.50 on its common stock in a single annual installment, and management plans on raising this dividend by 4 percent per...
Suppose that a firm always announces a yearly dividend at the end of the first quarter of the year, but then pays the dividend out as four equal quarterly payments. If the next such "annual" dividend has been announced as $6, it is exactly one quarter until the first quarterly dividend from that $6, the effective annual required rate of return on the company's stock is 17 percent, and all future "annual" dividends are expected to grow at 6 percent...
Bookmatch 8-14 (book/static) Question Help (Measuring growth) Given that a firm's return on equity is 18 percent and management plans to retain 40 percent of earnings for investment purposes, what will be the firm's growth rate? The firm's growth rate will be 96. (Round to two decimal places.) (Common stock valuation) Sanford common stock is expected to pay $1.85 in dividends next year, and the market price is projected to be $51.35 per share by year-end. If investors require a...
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