Your friend Carra is interested in investing in Spark common stocks. She knows that you are taking finance and have learned about stock valuation using historical dividends information. Carra has collected the following dividends data on Spark and asked for your help to calculate the stock price of this company. Use the Constant Growth Dividend model you learned to perform stock valuation for this company. Use the past dividends data to estimate the constant growth rate (it is assumed that the dividends will grow at its historical average growth rate from now onwards) for the dividends. Under the assumption that Spark will continue this dividend pattern forever and Carra wants to earn an annual rate of return of 11% on this investment, what price would Carra be willing to pay for the stock price of this company? What happens to the stock price that Carra would be willing to pay if her required rate of return is 15% (which is greater than 10%)? Briefly interpret your answers. Clearly show all formulae, steps and calculations

Your friend Carra is interested in investing in Spark common stocks. She knows that you are taking finance and have learned about stock valuation using historical dividends information. Carra has collected the following dividends data on Spark and asked for your help to calculate the stock price of this company. Use the Constant Growth Dividend model you learned to perform stock valuation for this company. Use the past dividends data to estimate the constant growth rate (it is assumed that the dividends will grow at its historical average growth rate from now onwards) for the dividends. Under the assumption that Spark will continue this dividend pattern forever and Carra wants to earn an annual rate of return of 11% on this investment, what price would Carra be willing to pay for the stock price of this company? What happens to the stock price that Carra would be willing to pay if her required rate of return is 15% (which is greater than 10%)? Briefly interpret your answers. Clearly show all formulae, steps and calculations

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.2.2MBA

See similar textbooks

Similar questions

Year Dividends (RM)2020 3,282019 3.012018 2.762017 2.532016 2.322015 2.13Cha owns stock in a company which has paid the annual dividends shown in the above table.a. Calculate the growth rate of these dividends.
CASE3: Data as given are shown below: Year Bartman Reynolds Market Index Stock Price Dividend Stock Price Dividend 2020 $17.250 $1.150 $48.750 $3.000 11,663.98 2019 14.750 1.06 52.300 2.90 8,785.70 2018 16.500 1.000 48.750 2.750 8,679.98 2017 10.750 0.950 57.250 2.500 6,434.03 2016 11.375 0.900 60.000 2.250 5,602.28 2015 7.625 0.850 55.750 2.000 4,705.97 Use the data given to calculate annual returns for Bartman and Reynolds, and the Market Index, and then calculate average returns over the five-year period. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in…
A) calculate the earnings per share (average of 425,000 shares outstanding for the year) for 2020. 1. Earnings per shares- B) calculate the price/earnings ratio (market price of $48 at year-end) 1. Price/ earnings ratio- C)calculate the dividend payout ratio (dividends of $1.25 per common share for the year) for 2020. 1.Dividend payout ratio-
Financial information for Forever 18 includes the following selected data:($ in millions) 2021 2020Net income $ 129 $ 308Dividends on preferred stock $ 20 $ 15Average shares outstanding 150 400Stock price $ 12.02 $ 10.97Required:1. Calculate earnings per share in 2020 and 2021. Did earnings per share increase in 2021?2. Calculate the price-earnings ratio in 2020 and 2021. In which year is the stock priced lower in relation to reported earnings?
Based on the earnings per share in the period from 2005 to 2012 indicated in the following table, determine the annual dividend per share in accordance with each of the policies described in items a) to d). Year Earnings per share2012 $ 1.402011 1.562010 1.202009 0.852008 1.052007 0.602006 1.002005 0.44 a) Pay 40% of earnings in all years with positive earnings.b) Pay $ 0.60 per share and increase to $ 0.70 when earnings per share rise above $ 0.90 for two consecutive years.c) Pay $ 0.60 per share except when earnings exceed $ 1.00 per share; in that case, an extraordinary dividend of 70% of earnings would be paid in excess of $ 1.00 per share.d) Combine the policies described in sections b) and c). When the dividend increases (in part b), increase the excess basis of the dividend (in part c) from $ 1.00 to $ 1.10 per share.e) Compare the dividend policies described in items a) to d).
Financial information for Forever 18 includes the following selected data: ($ in millions) 2024 2023 Net income $160 $171 Dividends on preferred stock $22 $17 Average shares outstanding 250 300 Stock price $11.92 $10.87 2-a. Calculate the price-earnings ratio in 2023 and 2024. 2-b. In which year is the stock priced lower in relation to reported earnings?
Year Dividends (RM)2020 3,282019 3.012018 2.762017 2.532016 2.322015 2.13Cha owns stock in a company which has paid the annual dividends shown in the above table. The required return is assumed to be 12 percent. Using the constant growth model, calculate the per share value of the stock.
net income for 2020 was $1.5 million and 6% cumulative preferred shares outstanding on 31 december 2020 was $3 million. $15 per value common shares outstanding on 31 december 2020 was $2,376,000. A) In the year of 2020, find the earning per share. B) what is the meaning by then?
The following information is taken from Tanaka Bhd for the year ended 31 December2020.Preference dividend declared and fully paid in 2020: RM100,000Ordinary dividend declared and fully paid in 2020: RM3,960,000Preference share marketable price per unit at 31 December 2020: RM4.60Ordinary share marketable price per unit at 31 December 2020: RM9.00 Required:a. Calculate the following ratio for 2020: Industry average ratioi. Current ratio 2.3 : 1ii. Quick ratio 1.1 : 1iii. Asset turnover 2.0Assumption: all sales in credit; finance expense means interest; ordinary share outstandingthroughout both years = 10,000,000 shares.
The following information is taken from Tanaka Bhd for the year ended 31 December2020.Preference dividend declared and fully paid in 2020: RM100,000Ordinary dividend declared and fully paid in 2020: RM3,960,000Preference share marketable price per unit at 31 December 2020: RM4.60Ordinary share marketable price per unit at 31 December 2020: RM9.00 Required:a. Calculate the following ratio for 2020: Industry average ratioi. Current ratio 2.3 : 1ii. Quick ratio 1.1 : 1iii. Asset turnover 2.0iv. Profit margin 4.0%v. Earnings per share RM0.46vi. Rate of return on total assets 11.0% Assumption: all sales in credit; finance expense means interest; ordinary share outstandingthroughout both years = 10,000,000 shares. b. From the industry average, identify and comment on Tanaka Bhd’s profitability and shortterm liquidity.
The following information is taken from Tanaka Bhd for the year ended 31 December2020. Preference dividend declared and fully paid in 2020: RM100,000Ordinary dividend declared and fully paid in 2020: RM3,960,000Preference share marketable price per unit at 31 December 2020: RM4.60Ordinary share marketable price per unit at 31 December 2020: RM9.00 Required:a. Calculate the following ratio for 2020: Industry average ratioi. Current ratio 2.3 : 1ii. Quick ratio 1.1 : 1iii. Asset turnover 2.0
Basic earning per share ratio= (net income- prefered dividends)/weighted average common shares outstanding (21,331-0)/500= $42.66 (2020 year) (11,588-0)/494= $23.46 (2019 year) $5.19 (Walmart 2020 year) (competitor) Write financial analysis report.