23. Stock Valuation [LO1] 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 6 percent per year indefinitely. If the required return on this stock is 12 percent, what is the current share price? b. Now suppose the company in (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just paid a $0.80 dividend 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 you think this model of stock valuation is appropriate.

23. Stock Valuation [LO1] 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 6 percent per year indefinitely. If the required return on this stock is 12 percent, what is the current share price? b. Now suppose the company in (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just paid a $0.80 dividend 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 you think this model of stock valuation is appropriate.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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16.H-Model (LO2, CFA6) The dividend for Should I, Inc., is currently $1.25 per share. It is expected to grow at 20 percent next year and then decline linearly to a 5 percent perpetual rate beginning in four years. If you require a 15 percent return on the stock, what is the most you would pay per share?
9.8. Valuing Preferred Stock Meteora, Inc., has an issue of preferred stock outstanding that pays a $3.75 dividend every year, in perpetuity. If this issue currently sells for $81 per share, what is the required return?
9. a. Doldrums Plastics has been paying a $3 dividend each year for two years andcompany reports indicate that management intends to continue this dividendpayment for the foreseeable future. The market determined required rate ofreturn on Doldrums's common stock is 15 percent, what will be the price of a shareof stock? b. Suppose that an aggressive new Chief Executive Officer, Dee Uamoca, is hired byDoldrums. Because of the productive policies and processes instituted byUamoca, capital market investors anticipate that Doldrums's earnings anddividends will increase at a constant 8 percent rate beginning immediately. Whatwould be the price of a share of Doldrums common stock if the required rate ofreturn remains at 15 percent?
Question 14 NTH Level Construction, a government building contractor, is going to pay an annual dividend of R2,86 a share on its common stock next year. This year, the company paid a dividend of R2,75 a share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth five years from now if the applicable discount rate is 11,70%? 1. R43,87 2. R42,34 3. R44,15 4. R45,19
23- Historically firm financial managers predominately feel that: a. dividends should be increased annually no matter what.b. the personal taxes of their shareholders must be their primary consideration whensetting dividend policy.c. dividend smoothing is talked about but rarely affects dividend decisions.d. once a dividend is increased, it should not be decreased.e. dividends should be flexible and adjusted annually in response to changes in thefirm's earnings.
9.7. Stock Valuation Gruber Corp. pays a constant $8.50 dividend on its stock. The company will maintain this dividend for the next 11 years and will then cease paying dividends forever. If the required return on this stock is 9.5 percent, what is the current share price?
Q23 A firm recently paid a $0.45 annual dividend. The dividend is expected to increase by 10 percent in each of the next four years. In the fourth year, the stock price is expected to be $80.If the required return for this stock is 13.5 percent, what is its current value? (Do not round intermediate calculations. Round your answer to 2 decimal places.) CURRENT VALUE---
19.) Microsoft's stock price peaked at 6118% of its IPO price more than 13 years after the IPO† Suppose that $20,000 invested in Microsoft at its IPO price had been worth $1,200,000 (6000% of the IPO price) after exactly 13 years. What interest rate, compounded annually, does this represent? (Round your answer to two decimal places.) Can someone explain how I can solve this in an easy way?
26.) the possible EBITs for the coming year are $300, $350, and $ 400 with the probabilities 20%, 40%, and 40% respectively. The interest payment is $90 and the corporate tax rate is 40%. There are 50 common shares outstanding. Training What is the standard deviation of EPS? A.).4490B.).5112C.).3412 D .).6322
35)Chamberlain Corporation is expected to pay the following dividends over the next four years: $14.00, $10.00, $9.00, and $4.50. Afterward, the company pledges to maintain a constant 5% growth rate in dividends forever. If the required return on the stock is 12%, what is the current share price?
Question 13) Shook Fitness pays an annual dividend that increases by 3.4 percent per year, commands a market rate of return of 14.2 percent, and sells for$11.92per share. What is the expected amount of the next dividend? $1.69 $2.29 $1.29 $2.32 $4.17 2)How much are you willing to pay for one share of Govender stock if the company just paid an annual dividend of$1.61, the dividends increase by 4.2 percent annually, and you require a return of 16.4 percent? $13.7$15.36$10.23$13.20$9.82
11-11. Tokyo Steel’s common stock currently is selling for $56 per share. The most recent dividend paid to common stockholders was $2.40, and this dividend is expected to grow at a rate of 5 percent for as long as Tokyo is in business. If it issues new common stock, Tokyo will incur flotation costs equal to 10.0 percent. What is the company’s cost of retained earnings? What is its cost of new common equity?

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