The Pancake Corporation recently paid a $3 dividend and is expected to grow at 5% forever. investors generally require an expected return of at least 9% before they'll buy stocks similar to those of Pancake.
a. What is Pancake's intrinsic value?
b. is t a bargain if it's selling at $76 a share?
a)
Dividend (Do) = $3
Growth rate (g) = 5%
Expected return (Ke) = 9%
P = [Do *(1+g)] / (Ke -g)
P = [$3 * (1 + 0.05)] / (0.09 - 0.05)
P = 3.15 / 0.04
P = $78.75
So, intrinsic value = $78.75 per share
b) If selling price $76 , the difference = ($78.75 - $76) = $2.75 which is less than 4% difference.
That's not apparent. Although our calculated intrinsic value exceeds the market price, it only does so by 4%. The modelling technique isn't accurate enough to identify 4% differences. Our result says that the stock has probably been priced about right by the market.
The Pancake Corporation recently paid a $3 dividend and is expected to grow at 5% forever....
A stock just paid a dividend this morning of $1.26. Dividends are expected to grow at 15.00% for the next two years. After year 2, dividends are expected to grow at 8.97% for the following three years. At that point, dividends are expected to grow at a rate of 4.00% forever. If investors require a return of 14.00% to own the stock, what is its intrinsic value?
ABC Company just paid annual dividend of $5 today. The dividend is expected to grow at 3% for the next 5 years, then it will grow at 5% in perpetuity. If stocks of similar company earn 9% annual return, what is the price of a share of ABC Company stock?
Ex 4) The CI Corp. has just paid a cash dividend of $2 per share. If investors require 16% return from investments such as this and the dividend is expected to grow at a steady 8% per year, what is the current value of the stock? What will the stock be worth in 5 years, given the same assumptions about the required return and the dividends? Answer: $27; $39.67Ex 5) A stock is selling for $40 per share currently. The...
Michael Scott's Paper Company common stock dividend is expected to grow at a long-run rate of 3% per year. The dividend recently paid was $1.50 per share. Investors require a 13% return from MSPC's common stock. What is your estimate of MSPC's common stock price? If analysts suddenly change their estimate of MSPC's dividends growth rate to 6% instead of 3% what will happen toMSPC's stock price? The dividend recently paid was $1.50 per share. Investors require a 13% return...
WMT Corporation has an issue of common stock. The firm most recently paid a dividend of $1.00 per share. The dividend is projected to grow at the rate of 25% for the next two years followed by 6% thereafter for indefinite future. If the investor demand 12% return on similar risk stocks, what should be the price of this common stock?
Ammermann Components recently paid a dividend of $1 per share. This dividend is expected to grow at a rate of 25 percent a year for the next five years, after which it is expected to grow at a rate of 7 percent a year. The required rate of return for this stock is 18 percent. What is the estimated price of the stock?
Zeta Enterprises’ common stock dividend is expected to grow at a long-run rate of 3% per year. The dividend recently paid was $1.50 per share. Investors require a 13% return from Zeta’s common stock. What is your estimate of Zeta Enterprises’ common stock price?
The last dividend paid by GM was $1.25. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firms required return (rs) is 11% in Years 1 and 2 and then increases to 13% thereafter and (rs) remains at 13% indefinitely. What is the stocks current price?
Recently, L. Chiatti Company paid a $2.37 dividend per share. The dividend is expected to grow at a constant rate of 5.50% forever. The common stock of the company currently sells for $52.50 per share. The before-tax cost of debt is 7.50%, and the company’s tax rate is 40%. The target capital structure of the company consists of 45% debt and 55% common equity. What is the company’s WACC if all the equity used is from retained earnings (Note, you...
Moriband Corp. paid a dividend of $2.15 yesterday. The company's dividend is expected to grow at a steady rate of 5 percent for the foreseeable future. If investors in stocks of companies like Moriband require a rate of return of 15 percent, what should be the market price of Moriband stock? X-Centric Energy Company has issued perpetual preferred stock with a stated (par) value of $100 and a dividend of 4.5 percent. If the required rate of return is 8.25...