Common stock value-Constant growth: Elk County Telephone has paid the dividends shown n the following table over the past 6 years. Year Dividend per share ($) 2012 2.87 2011 2.76 2010 2.60 2009 2.46 2008 2.37 2007 2.25 The firm's dividend per share next year is expected to be $3.02. (i) If you can earn 13% on similar-risk investments, what is the most you would be willing to pay per share? (ii) If you can earn only 10% on similar-risk investments, what is the most you would be willing to pay per share? (iii) Compare and contrast your findings in parts a and b, and discuss the impact of changing risk on share value.

Common stock value-Constant growth: Elk County Telephone has paid the dividends shown n the following table over the past 6 years. Year Dividend per share ($) 2012 2.87 2011 2.76 2010 2.60 2009 2.46 2008 2.37 2007 2.25 The firm's dividend per share next year is expected to be $3.02. (i) If you can earn 13% on similar-risk investments, what is the most you would be willing to pay per share? (ii) If you can earn only 10% on similar-risk investments, what is the most you would be willing to pay per share? (iii) Compare and contrast your findings in parts a and b, and discuss the impact of changing risk on share value.

Name: Common stock value-Constant growth: Elk County Telephone has paid the
Uploaded: 2024-03-20T06:51:32.000Z
Channel: Bartleby
Description: Common stock value-Constant growth: Elk County Telephone has paid the dividends shownin the following table over the past 6 years.Year Dividend per share ($)2012 2.872011 2.762010 2.602009 2.462008 2.372007 2.25The firm's dividend per share next yea

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 19P

See similar textbooks

Similar questions

The Castle Company recently reported net profits after taxes of $15.8 million. It has 2.5 million shares of common stock outstanding and pays preferred dividends of $1 million a year. The company’s stock currently trades at $60 per share. Compute the stock’s earnings per share (EPS). What is the stock’s P/E ratio? Determine what the stock’s dividend yield would be if it paid $1.75 per share to common stockholders.
CALCULATING THE WACC Here is the condensed 2019 balance sheet for Skye Computer Company (in thousands of dollars): Skyes earnings per share last year were 3.20. The common stock sells for 55.00. last years dividend (D0) was 2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skyes preferred stock pays a dividend of 3.30 per share, and its preferred stock sells for 30.00 per share. The firms before-lax cost of debt is 10%, and its marginal tax rate is 25%. The firms currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skyes beta is 1.516. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals 1.2 million. a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. b. Now calculate the cost of common equity from retained earnings, using the CAPM method. c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r1 and rs as determined by the DCF method, and add that differential to the CAPM value for rs.) d. If Skye continues to use the same market-value capital structure, what is the firms WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock?
Conroy Consulting Corporation (CCC) has a current dividend of D0 = $2.5. Shareholders require a 12% rate of return. Although the dividend has been growing at a rate of 30% per year in recent years, this growth rate is expected to last only for another 2 years (g0,1 = g1,2 = 30%). After Year 2, the growth rate will stabilize at gL = 7%. What is CCC’s stock worth today? What is the expected stock price at Year 1? What is the Year 1 expected (1) dividend yield, (2) capital gains yield, and (3) total return? What is its expected dividend yield for the second year? The expected capital gains yield? The expected total return?
Return on Common Stock You buy a share of The Ludwig Corporation stock for $21.40. You expect it to pay dividends of $1.07, $1.1449, and $1.2250 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $26.22 at the end of 3 years. Calculate the growth rate in dividends. Calculate the expected dividend yield. Assuming that the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to obtain the expected total rate of return. What is this stock’s expected total rate of return (assume the market is in equilibrium with the required return equal to the expected return)?