Concept explainers
A
To calculate: The intrinsic value of share of Xyrong stock is to be determined with the given information.
Introduction: When a company has to be valued without the reference of the market value, we make use of the concept of intrinsic value. Intrinsic value is supposed to be the value of the company derived after a detailed analysis, specifically without considering its market value.
B
To calculate: The expected one year holding period return of Xyrong stock is to be determined when the market price of share is $100.
Introduction:
When a company has to be valued without the reference of the market value, we make use of the concept of intrinsic value. Intrinsic value is supposed to be the value of the company derived after a detailed analysis, specifically without considering its market value.
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Chapter 18 Solutions
INVESTMENTS (LOOSELEAF) W/CONNECT
- 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.)arrow_forwardPortman Industries just paid a dividend of $1.92 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 16.00% over the next year. After the next year, though, Portman’s dividend is expected to grow at a constant rate of 3.20% per year. The risk-free rate (rRFrRF) is 4.00%, the market risk premium (RPMRPM) is 4.80%, and Portman’s beta is 2.00. What is the dividents one year from now? What is the Horizon value? What is the Intrinsic value?arrow_forwardZincon Industries has a beta of 1.45. The risk-free rate is 8 percent and the expected returnon the market portfolio is 14 percent. The investors required rate of return is 15%. The companycurrently pays a dividend of $2 a share, and investors expect it to experience a growth in dividends of 10 percent per annum for many years to come.a. What is the stock’s required rate of return using CAPM?b. What is the stock’s present market price per share, assuming this required return?c. What would happen to the required return and to market price per share if the beta were 0.80?(Assume that all else stays the same.)arrow_forward
- The earnings, dividends, and stock price of Shelby Inc. are expected to grow at 8% per year in the future. Shelby's common stock sells for $28.50 per share, its last dividend was $2.50, and the company will pay a dividend of $2.70 at the end of the current year. If the firm's beta is 2.0, the risk-free rate is 5%, and the expected return on the market is 13%, then what would be the firm's cost of equity based on the CAPM approach? Round your answer to two decimal places. %arrow_forwardThe earnings, dividends, and stock price of Shelby Inc. are expected to grow at 8% per year in the future. Shelby's common stock sells for $28.50 per share, its last dividend was $2.50, and the company will pay a dividend of $2.70 at the end of the current year. If the firm's beta is 2.0, the risk-free rate is 5%, and the expected return on the market is 13%, then what would be the firm's cost of equity based on the CAPM approach? Round your answer to two decimal places. % If the firm's bonds earn a return of 11%, then what would be your estimate of rs using the over-own-bond-yield-plus-judgmental-risk-premium approach? Round your answer to two decimal places. (Hint: Use the midpoint of the risk premium range.) % On the basis of the results of parts a through c, what would be your estimate of Shelby's cost of equity? Assume Shelby values each approach equally. Round your answer to two decimal places. %arrow_forwardPrima Corporation’s dividend per share next year is expected to be RM3.02and the firm expects dividends to grow at a rate of 5% per year for theforeseeable future.If you can earn 13% on similar-risk investments, what is the most you wouldbe willing to pay per share? If you can earn only 10% on similar-riskinvestments, what is the most you would be willing to pay per share?Compare and contrast your findings, and explain the impact of changing riskon share value.arrow_forward
- Rossdale Company stock currently sells for $72.43 per share and has a beta of 1.20. The market risk premium is 7.30 percent and the risk-free rate is 2.98 percent annually. The company just paid a dividend of $4.21 per share, which it has pledged to increase at an annual rate of 3.65 percent indefinitely. What is your best estimate of the company's cost of equity?arrow_forwardNational Corporation's stock is currently selling for P160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. In addition, National Corporation's most recent dividend was P5.50. If the expected risk free rate of return is 3 percent, the expected market return is 8 percent, and National Corporation has a beta of 1.2, National Corporation's stock would be ________.arrow_forwardBulldogs Inc. has been growing at a constant rate of 10% each year and produce earnings per share of P4.00 next year. The Bulldogs Inc. has a dividend payout ratio of 35% and a beta value of 1.25. If the risk-free rate is 7% and the overall return on the market is 15%, what is the expected intrinsic value of Bulldogs Inc.’s ordinary stock?arrow_forward
- The future earnings, dividends, and common stock price ofCallahan Technologies Inc. are expected to grow 6% per year. Callahan’s common stockcurrently sells for $22.00 per share, its last dividend was $2.00, and it will pay a $2.12 dividendat the end of the current year.a. Using the DCF approach, what is its cost of common equity?b. If the firm’s beta is 1.2, the risk-free rate is 6%, and the average return on the market is13%, what will be the firm’s cost of common equity using the CAPM approach?c. If the firm’s bonds earn a return of 11%, based on the bond-yield-plus-risk-premiumapproach, what will be rs? Use the midpoint of the risk premium range discussed inSection 10-5 in your calculations.d. If you have equal confidence in the inputs used for the three approaches, what is yourestimate of Callahan’s cost of common equity?arrow_forwardThe future earnings, dividends, and common stock price ofCallahan Technologies Inc. are expected to grow 6% per year. Callahan’s common stockcurrently sells for $22.00 per share, its last dividend was $2.00, and it will pay a $2.12 dividendat the end of the current year.a. Using the DCF approach, what is its cost of common equity?b. If the firm’s beta is 1.2, the risk-free rate is 6%, and the average return on the market is13%, what will be the firm’s cost of common equity using the CAPM approach?c. If the firm’s bonds earn a return of 11%, based on the bond-yield-plus-risk-premium approach, what will be rs? d. If you have equal confidence in the inputs used for the three approaches, what is yourestimate of Callahan’s cost of common equity?arrow_forwardMetro company has a beta of 1.20, the risk free rate of return is currently ----- (consider the current rate of treasury bills) and the market return is 14%. The company, which plans to pay a dividend of Rs 2.60 per share in the coming year (2007) anticipates that its future dividends will increase at an annual rate consistent with that experienced over the 2002- 2006 period, when the following dividends were paid. Year 2000 2001 2002 2003 2004 2005 2006 Div./share 1.73 1.80 1.82 1.95 2.10 2.28 2.45 Use the capital asset pricing model to determine the required return on giant stock.arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT