Nonconstant Dividend Growth ValuationConroy Consulting Corporation (CCC) has a current dividend of Do = $2.00. Shareholders require an 11% rate of return. Although the dividend has been growing at a rate of 28% per year in recent years,this growth rate is expected to last only for another 2 years (go,1= g1,2 = 28%). After Year 2, the growth rate will stabilize at gL = 5%.a. What is CCC's stock worth today? Do not round intermediate calculations. Round your answer to the nearest cent.$61.65b. What is the expected stock price at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent.$65.86c. What is the Year 1 expected (1) dividend yield, (2) capital gains yield, and (3) total return? Do not round intermediate calculations. Round your answers to two decimal places.Dividend yield:4.15Capital gains yield:6.83%Total return:10.98%d. What is its expected dividend yield for the second year? The expected capital gains yield? The expected total return? Do not round intermediate calculations. Round your answers to two decimal places.Dividend yield:5.13%Capital gains yield:7.35%Total return:11.16%Hide FeedbackPartially Correct

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Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 24P: Conroy Consulting Corporation (CCC) has a current dividend of D0 = $2.5. Shareholders require a 12%...

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Nonconstant Growth Stock Valuation Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of 0.50 coming 3 years from today. The dividend should grow rapidlyat a rate of 80% per yearduring Years 4 and 5. After Year 5, the company should grow at a constant rate of 7% per year. If the required return on the stock is 16%, what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)?
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?
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.)
Assume that Temp Force is a constant growth company whose last dividend (D0, which was paid yesterday) was 2.00 and whose dividend is expected to grow indefinitely at a 6% rate. (1) What is the firms current estimated intrinsic stock price? (2) What is the stocks expected value 1 year from now? (3) What are the expected dividend yield, the expected capital gains yield, and the expected total return during the first year?
WACC Estimation On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $30 million in new projects. The firm’s present market value capital structure, shown here, is considered to be optimal. There is no short-term debt. New bonds will have an 8% coupon rate, and they will be sold at par. Common stock is currently selling at $30 a share. The stockholders’ required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected constant growth rate of 8%. (The next expected dividend is $1.20, so the dividend yield is $1.20/$30 = 4%.) The marginal tax rate is 40%. In order to maintain the present capital structure, how much of the new investment must be financed by common equity? Assuming there is sufficient cash flow for Tysseland to maintain its target capital structure without issuing additional shares of equity, what is its WACC? Suppose now that there is not enough internal cash flow and the firm must issue new shares of stock. Qualitatively speaking, what will happen to the WACC? No numbers are required to answer this question.

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