We have valued stocks of publicly traded corporations as perpetuities. Is this a reasonable method? Since an investor will likely not own the stock forever, would it make more sense to just value a dividend stream for the next three years and then assume the stock is sold?
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We have valued stocks of publicly traded corporations as perpetuities. Is this a reasonable method? Since an investor will likely not own the stock forever, would it make more sense to just value a dividend stream for the next three years and then assume the stock is sold?
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- Why might a stock dividend or a stock split be of limited value to an investor? What about a stock repurchase? Companies have been spending trillions of dollars to repurchase their own shares in recent years. Why do they do so? Does it make sense for a corporation to repurchase its own stock? Explain.A Corporation will pay a dividend of $1.75 per share at this year's end and a dividend of $2.25 per share at the end of next year. It is expected that the price of its stock will be $42 per share after two years. If the firm has an equity cost of capital of 9%, what is the maximum price that a prudent investor would be willing to pay for a share of the stock today? Do not include a dollar sign.The CFO of General Electric corporation is deciding if his company should invest 500,000 shares of Lightbridges industries.They manufacture innovative smart led light systems for residential homes.Lightbridge industries stock price is currently listed at $24.84 per share, and the expected dividend yield is 5.4%. a) What is the expected value of the first dividend payment at the end of the year? b)How would you use the dividend yield model to value the price of a stock if it presently does not pay dividends but is expected to pay dividends in the future?
- Carpenter, Inc. has perfected stock that pays a dividend of $2.25 at the end of each year. If your required rate of return is 9.25%, what is the value of this preferred stock?Your corporation has declared a cash dividend of $5.00 per share. Before the cash dividend the stock was selling for $60.00 per share. When the stock goes ex-dividend what will the price per share be? Please show your calculations in the space provided.What would the ex-dividend price per share be?Which of the following statements best describes how a change in a firm’s stock price would affect a stock’s capital gains yield? The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm’s expected future stock price. The capital gains yield on a stock that the investor already owns has a direct relationship with the firm’s expected future stock price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.25 at the end of the year. Its dividend is expected to grow at a constant rate of 9.00% per year. If Walter’s stock currently trades for $26.00 per share, what is the expected rate of return? Which of the following statements will always hold true? The constant growth valuation formula is not appropriate to use for zero growth stocks. It will never be appropriate for a rapidly growing startup company that pays no dividends at present—but is expected to…
- At the present time, Ferro Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Ferro has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $11 per share. If the investors pay $95.70 per share for their investment, then Ferro’s cost of preferred stock (rounded to four decimal places) will be: A. 12.0690% B. 11.4943% C. 12.6437% D. 13.2184%Forral Company has never paid a dividend. But the company plans to start paying dividends in two years-that is, at the end of Year 2. The first dividend is expected to equal $1 per share. The second dividend and every dividend thereafter are expected to grow at a 6 percent rate. If Investors require a 14 percent rate of return to purchase Forral's common stock, what should be the market value of its stock today? Do not round intermediate calculations. Round your answer to the nearest cent. $______.: 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 the company’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)?
- You bought a stock of XYZ one year ago for $50 per share and sold it today for $55 per share. It paid a $1 per share dividend today. What was your realized return? How much of the return came from dividend yield and how much came from capital gain? Assuming that the stock fell $5 to $45 instead. Is your capital gain different? Why or why not? Is your dividend yield different? Why or why not?Forral Company has never paid a dividend. But the company plans to start paying dividends in two years—that is, at the end of Year 2. The first dividend is expected to equal $2 per share. The second dividend and every dividend thereafter are expected to grow at a 5 percent rate. If investors require a 10 percent rate of return to purchase Forral's common stock, what should be the market value of its stock today? Do not round intermediate calculations. Round your answer to the nearest cent. $ _______Lahhey Publishing wishes to estimate the value of its outstanding preferred stock. The preferred stock has a RM50 par value and pays an annual dividend of RM7.50 per share and currently earning an 8% annual rate of return. (i) Calculate the market value of the outstanding preferred stock. (ii) If an investor purchases the preferred stock at the value calculated in part (a), how much does she gain or lose per share if she sells the stock when the required return on preferred stock has fallen to 6%. Explain.