Common stock value: Constant growth Seagate Technology is a global leader in data storage solutions and a high-yield dividend payer. From 2015 through 2019, Seagate paid the following per-share dividends:ITYear20192018Dividend per share$2.572.2520171.8620161.2320151.54Assume that the historical annual growth rate of Seagate dividends is an accurate estimate of the future constant annual dividend growth rate. Use a 20% required rate of return to find the value of Seagate's stockimmediately after it paid its 2019 dividend of $2.57.The value of Seagate's stock is $(Round to the nearest cent.)

The Gordon Growth Model (GGM) is a version of the dividend discount model (DDM). It is used to…

Answered: Common stock value: Constant growth…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 12P

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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?
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.
ALTERNATIVE DIVIDEND POLICIES In 2018, Keenan Company paid dividends totaling 3,600,000 on net income of 10.8 million. Note that 2018 was a normal year and that for the past 10 years, earnings have grown at a constant rate of 10%. However, in 2019, earnings are expected to jump to 14.4 million and the firm expects to have profitable investment opportunities of 8.4 million. It is predicted that Keenan will not be able to maintain the 2019 level of earnings growth because the high 2019 earnings level is attributable to an exceptionally profitable new product line introduced that year. After 2019, the company will return to its previous 10% growth rate. Keenans target capital structure is 40% debt and 60% equity. a. Calculate Keenans total dividends for 2019 assuming that it follows each of the following policies: 1. Its 2019 dividend payment is set to force dividends to grow at the long-run growth rate in earnings. 2. It continues the 2018 dividend payout ratio. 3. It uses a pure residual dividend policy (40% of the 8.4 million investment is financed with debt and 60% with common equity). 4. It employs a regular-dividend-plus-extras policy, with the regular dividend being based on the long-run growth rate and the extra dividend being set according to the residual dividend policy. b. Which of the preceding policies would you recommend? Restrict your choices to the ones listed but justify your answer. c. Assume that investors expect Keenan to pay total dividends of 9,000,000 in 2019 and to have the dividend grow at 10% after 2019. The stocks total market value is 180 million. What is the companys cost of equity? d. What is Keenans long-run average return on equity? [Hint: g = Retention rate ROE = (1.0 Payout rate)(ROE)] e. Does a 2019 dividend of 9,000,000 seem reasonable in view of your answers to parts c and d? If not, should the dividend be higher or lower? Explain your answer.
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)?
Calculation of gL and EPS Spencer Suppliess stock is currently selling for 60 a share. The firm is expected to earn 5.40 per share this year and to pay a year-end dividend of 3.60. a. If investors require a 9% return, what rate of growth must be expected for Spencer? b. If Spencer reinvests earnings in projects with average returns equal to the stocks expected rate of return, then what will be next years EPS? [Hint: gL = ROE Retention ratio.)
Common stock value: Constant growth Seagate Technology is a global leader in data storage solutions and a high-yield dividend payer. From 2015 through 2019, Seagate paid the followingper-share dividends: Year Dividend per share 2019 $2.51 2018 $2.27 2017 $1.83 2016 $1.16 2015 $1.49 Assume that the historical annual growth rate of Seagate dividends is an accurate estimate of the future constant annual dividend growth rate. Use a 19% required rate of return to find the value of Seagate's stock immediately after it paid its 2019 dividend of $2.51.
Common stock value: Constant growth Seagate Technology is a global leader in data storage solutions and a consistent dividend payer. From 2018 through 2022, Seagate paid the following per-share dividends: Year Dividend per share 2022 $2.54 2021 2.23 2020 1.84 2019 1.16 2018 1.55 Assume that the historical annual growth rate of Seagate dividends is an accurate estimate of the future constant annual dividend growth rate. Use a 18% required rate of return to find the value of Seagate's stock immediately after it paid its 2022 dividend of $2.54.
Seagate Technology is a global leader in data storage solutions and a high-yield dividend payer. From 2015 through 2019,Seagate paid the following per-share dividends: Year Dividend per share 2019 $2.54 2018 2.21 2017 1.81 2016 1.22 2015 1.48 Assume that the historical annual growth rate of Seagate dividends is an accurate estimate of the future constant annual dividend growth rate. Use a 22% required rate of return to find the value of Seagate's stock immediately after it paid its 2019 dividend of $2.54. The value of Seagate's stock is $
Seagate Technology is a global leader in data storage solutions and a high-yield dividend payer. From 2015 through 2019, Seagate paid the following per-share dividends: Year Dividend per share 2019 $2.49 2018 2.28 2017 1.86 2016 1.21 2015 1.48 Assume that the historical annual growth rate of Seagate dividends is an accurate estimate of the future constant annual dividend growth rate. Use a 22% required rate of return to find the value of Seagate's stock immediately after it paid its 2019 dividend of $2.49.
Subject: accounting Estimating the Market’s Expected Growth Rate in Dividends Mattel, Inc. was trading at a price of $31.24 per common share at December 31, 2015. Using the Gordon growth model, estimate the market’s expected growth in dividends that is required to yield the $31.24 price per common share. Assume that the current dividend per share is $1.52 and is expected to grow thereafter, and that the cost of equity capital is 8.0%. (Hint: Use the equation for the dividend discount model with increasing perpetuity, at the top of page 12-20.) Round answer to one decimal place (ex: 0.0235 = 2.4%). Note: Assume current dividend per share is the dividend amount when the constant growth period begins. Answer%
Over the last 10 years, a firm has had the earnings per share shown in the following table: Years and Earnings per share 2022 4.46 2017 2.722021 4.36 2016 1.492020 3.56 2015 1.322019 2.27 2014 -1.642018 3.88 2013 0.55 a. If the firm's dividend policy were based on a constant payout ratio of 40% for all years with positive earnings and 0% otherwise, what would be the annual dividend for 2022? b. If the firm had a dividend payout of $1.00 per share, increasing by $0.10 per share whenever the dividend payout fell below 50% for two consecutive years, what annual dividend would the firm pay in 2022? c. If the firm's policy were to pay $0.50 per share each period except when earnings per share exceed $3.00, when an extra dividend equal to 80% of earnings beyond $3.00 would be paid, what annual dividend would the firm pay in 2022?
Over the last 10 years, a firm has had the earnings per share shown in the following table: Years and Earnings per share 2022 4.35 2017 3.092021 4.95 2016 1.552020 3.24 2015 1.782019 2.67 2014 -1.922018 4.35 2013 0.96 . a) If the firm's dividend policy were based on a constant payout ratio of 40% for all years with positive earnings and 0% otherwise, what would be the annual dividend for 2018? $1.74 b) If the firm had a dividend payout of $1.00 per share, increasing by $0.10 per share whenever the dividend payout fell below 50% for two consecutive years, what annual dividend would the firm pay in 2018? (enter your response here) c) If the firm's policy were to pay $0.50 per share each period except when earnings per share exceed $3.00, when an extra dividend equal to 80% of earnings beyond $3.00 would be paid, what annual dividend would the firm pay in 2018? (enter your response here) d) Discuss the pros and…

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