1. Company A has a current stock of $25 and is expected to pay a $ 0.2 dividend in one year. The equity cost of capital is 5%. what price would its stock be expected to sell for immediately after it pays the dividend?
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
1. Company A has a current stock of $25 and is expected to pay a $ 0.2 dividend in one year. The equity cost of capital is 5%. what price would its stock be expected to sell for immediately after it pays the dividend?
2. Company B is expected to pay dividends of $1.75 every 6 months for the next 4 years. If the current price of Company B stock is $18.6 and Company B's equity cost of capital is 10%. What price would you expect the stock to sell for the end of 4 years?
3. Company C pays a dividend of $5 per share and is expected to pay this amount indefinitely. The equity cost of capital is 7%. What are the prices of the stock?
4. Stock is bought for $27 and sold for $30 1 year later, immediately after it has paid a dividend of $1.75. What is the
5. Company D is expected to pay a dividend of $3 once a year. It is expected to sell for $55 1 year from today. The equity cost of capital is 10%. What is the expected capital gain rate from the sale of this stock 1 year from today?
6. A stock is expected to pay $2 per share every year indefinitely. The current price of the stock is $25. The equity cost of capital for the company is 8.5%. What price would an investor be expected to pay per share 5 years into the future?
7. Company Z is expected to pay a $3.5 dividend at the end of this year. You expect Company Z's dividend to grow by 2.5% per year forever. Company Z's equity cost of capital is 13% What is the value of a share of Company Z's stock?
8. Company E has a dividend yield of 7.5% and a
9. Company F will have earnings per share of $3.5 this year and expect that they will pay out $1.75 of these earnings to shareholders in the form of a dividend. Company F's return on new investments is 15% and their equity cost of capital is 15%. The expected growth rate for Company F's dividends is ________.
10. Company F will have earnings per share of $3.5 this year and expect that they will pay out $1.75 of these earnings to shareholders in the form of a dividend. Company F's return on new investments is 15% and their equity cost of capital is 15%. The value of Company F's stock is ________.
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