An analyst on Bloomberg News recently commented that Netflix stock will start paying dividends in the near future because of all of the cash flow that it generates. When pressed on the issue, the analyst made a bold forecast that Netflix will start paying its first dividend 4 years from now in the amount of $50 per share, after which the growth rate would be a constant rate of 3%, forever. Netflix has a debt-to-equity ratio (D/E) of 0.2, the annual YTM on the company’s bonds averages 4.4% and the company’s tax rate is projected to be 30% in the future. If the risk-free rate is 2.8%, the market risk premium is 6% and Netflix’s Beta is 1.2, what should the stock sell for today based on a discounted valuation of the future dividends that the analyst projected?

An analyst on Bloomberg News recently commented that Netflix stock will start paying dividends in the near future because of all of the cash flow that it generates. When pressed on the issue, the analyst made a bold forecast that Netflix will start paying its first dividend 4 years from now in the amount of $50 per share, after which the growth rate would be a constant rate of 3%, forever. Netflix has a debt-to-equity ratio (D/E) of 0.2, the annual YTM on the company’s bonds averages 4.4% and the company’s tax rate is projected to be 30% in the future. If the risk-free rate is 2.8%, the market risk premium is 6% and Netflix’s Beta is 1.2, what should the stock sell for today based on a discounted valuation of the future dividends that the analyst projected?

Name: An analyst on Bloomberg News recently commented that Netflix stock wil
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Description: An analyst on Bloomberg News recently commented that Netflix stock will start paying dividends in the near future because of all of the cash flow that it generates. When pressed on the issue, the analyst made a bold forecast that Netflix will start p

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section: Chapter Questions

Problem 21P

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An analyst on Bloomberg News recently commented that Netflix stock will start paying dividends in the near futurebecause of all of the cash flow that it generates. When pressed on the issue, the analyst made a bold forecast thatNetflix will start paying its first dividend 4 years from now in the amount of $50 per share, after which the growth ratewould be a constant rate of 3%, forever. If the appropriate discount rate for Netflix stock is 10%, what should thestock sell for today based on a discounted valuation of the future dividends that the analyst has projected?
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