Suppose a stock is not currently paying dividends, and its management has announced that it will not pay a dividend for several years, but that it does expect to start paying dividends sometime in the future. Under these conditions, which of the following statements is most correct? Group of answer choices Such a stock should have a value of zero until it actually begins paying dividends. Under these conditions, we can estimate a value for the stock, but we cannot use any form of the constant growth DCF model to do so. Since it is expected to someday pay dividends, the value of the stock today can be found with this equation: P0 = D1/(r - g). The value of the stock can be found using DCF procedures by finding the present value of expected future dividends accounting for their timing and amount

Suppose a stock is not currently paying dividends, and its management has announced that it will not pay a dividend for several years, but that it does expect to start paying dividends sometime in the future. Under these conditions, which of the following statements is most correct? Group of answer choices Such a stock should have a value of zero until it actually begins paying dividends. Under these conditions, we can estimate a value for the stock, but we cannot use any form of the constant growth DCF model to do so. Since it is expected to someday pay dividends, the value of the stock today can be found with this equation: P0 = D1/(r - g). The value of the stock can be found using DCF procedures by finding the present value of expected future dividends accounting for their timing and amount

Fundamentals of Financial Management (MindTap Course List)

15th Edition

ISBN:9781337395250

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 22SP

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23. Suppose a stock is not currently paying dividends, and its management has announced that it will not pay a dividend for several years, but that it does expect to start paying dividends sometime in the future. Under these conditions, which of the following statements is most correct? a. The value of the stock can be found using DCF procedures by finding the present value of expected future dividends accounting for their timing and amount. b.Since it is expected to someday pay dividends, the value of the stock today can be found with this equation: P0 = D1/(r - g). c. Under these conditions, we can estimate a value for the stock, but we cannot use any form of the constant growth DCF model to do so. d. Such a stock should have a value of zero until it actually begins paying dividends.
6 A preferred stock will pay a dividend of P2.75 in the upcoming year, and every year thereafter, i.e., dividends are not expected to grow. You require a return of 10% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock. Group of answer choices P31.82 P27.50 P0.275 None of these is correct P56.25
[28] Choose the correct answer w/ explanation. FINEX Corporation has common and preferred shares outstanding that recently paid a dividend of PhP 10 per share. Which of the following is correct? Both prices should be the same if markets are efficient and the required returns are the same Both prices should be the same since the dividends are the same The price of the common stock is expected to be higher if the required return on the common stock is lower than the required return on preferred stock The price of the common stock will be lower if dividends are not expected to grow
Q: Corn, Inc., has an odd dividend policy. The company has just paid a dividend of $6 per share and has announced that it will increase the dividend by $2 per share for each of the next four years, and then never pay another dividend. suppose you require an 11 percent return on thecompany’s stock.Required:a) how much will you pay for a share today?b) Is the value of this stock dependent upon how long you plan to hold it? would this affect the value of the stock today?c) What happens if a company has a constant growth g that exceeds its cost of capital ks?Will many stocks have expected g> ks in the short run? In the long run (that is, forever)?
19. Assume that a stock is expected to pay dividends at the end of Year 1 and Year 2 of $1.25 and $1.56, respectively. Dividends are expected to grow at a 5% rate thereafter. Assuming that ke is 11.6%, the value of the stock is closest to: A. $22.30. B. $23.42. C. $24.55.
A stock's dividend in 1 year is expected to be $2.7. The dividend is expected to remain the same indefinitely. The stock's required return is 9%. The estimated value of the stock today is $________. Do not round any intermediate work, but round your final answer to 2 decimal places (ex: $12.34567 should be entered as 12.35).
9. Stocks that don't pay dividends yet Goodwin Technologies, a relatively young company, has been wildly successful but has yet to pay a dividend. An analyst forecasts that Goodwin is likely to pay its first dividend three years from now. She expects Goodwin to pay a $3.50000 dividend at that time (D₃ = $3.50000) and believes that the dividend will grow by 18.20000% for the following two years (D₄ and D₅). However, after the fifth year, she expects Goodwin’s dividend to grow at a constant rate of 3.90000% per year. Goodwin’s required return is 13.00000%. Fill in the following chart to determine Goodwin’s horizon value at the horizon date (when constant growth begins) and the current intrinsic value. To increase the accuracy of your calculations, do not round your intermediate calculations, but round all final answers to two decimal places. Term Value Horizon value (Number) Current intrinsic value (number) Assuming that the markets are in…
1. Fun Tyne plc declares a dividend payment of 20p per share. Ignoring taxes and the time value of money, and assuming that markets are efficient, you would expect stock price to: a. Immediately increase by 20p on the payment date b. Immediately increase by 20p on the ex-dividend date c. Immediately decrease by 20p on the declaration date d. Immediately decrease by 20p on the ex-dividend date e. Noneoftheabove 2. Lois selects securities to invest in after carefully examining the fundamentals of a company, using the accounting statements in its annual reports. Peter seeks to earn abnormal returns solely by studying stock price charts and investing based on the patterns he finds in the past prices. Which one of the following statements is correct? a. If Lois earns abnormal returns this violates weak-form market efficiency. If Peter earns abnormal returns this violates strong-form market efficiency. b. If Lois earns abnormal returns this violates strong-form market efficiency. If Peter…
1. An analyst estimates that a stock will pay a $1 dividend next year and that it will sell for $40 at year-end. If the required rate of return is 14%, what is the value of the stock? A. $34.60. B. $35.52. C. $35.96. Please provide an accurte answer.
Please provide solutions. Thank you. 1. A firm has common stock with a prevailing market price of P100 per share. New issue of stock is expected to be sold for P98, with P2 per share representing the under-pricing necessary in the competitive capital market. Flotation costs are expected to total P1 per share. The dividends paid on the outstanding stock over the past five years are as follows: Year Dividend1 P4.002 4.283 4.584 4.905 5.24 The cost of the firm’s new common stock equity is?
7. Answer both questions: a) The stock of Payout Inc. will go ex-dividend tomorrow. The dividend will be $1 per share. There are 20,000 shares of stock outstanding. The market value balance sheet for Payout is below: Assets Liabilities and equity Cash $100,000 Equity $1,000,000 Fixed assets $900,000 i) What price is Payout selling for today? Explain your answer. ii) What price will it sell for tomorrow? Explain your answer. b) Now suppose that Payout announces its intention to repurchase $20,000 worth of stock instead of paying out the dividend. i) What effect will the repurchase have on an investor who currently holds 10 shares and sells 2 of those shares back to the company in the repurchase? ii) Compare the effects of the repurchase to the effects of the cash dividend that worked out in 7(a).
21 An investor is contemplating the purchase of common stock at the beginning of this year and to hold the stock for one year. The investor expects the year-end dividend to be P2.00 and expects a year-end price for the stock of P40. If this investor’s required rate of return is 10%, then the value of the stock to this investor is: Group of answer choices P34.88. P38.18. P33.06. P36.36.