Fundamentals Of Financial Management
14th Edition
ISBN: 9781305629080
Author: Eugene F. Brigham, Joel F. Houston
Publisher: South-western College Pub (edition 14)
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Question
Chapter 21, Problem 1P
Summary Introduction
To Determine: The current price of Corporation V’s stock.
Introduction: A stock is a common word used to represent the proprietorship statements of any organization. A share alludes to the stock declaration of a specific organization.
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Hastings Corporation is interested in acquiring Visscher Corporation. Assume that the riskfreerate of interest is 4%, and the market risk premium is 5%.
Visscher currently expects to pay a year-end dividend of $1.99 a share (D1 =$1.99). Visscher’s dividend is expected to grow at a constant rate of 5% a year, and its betais 0.8. What is the current price of Visscher’s stock?
Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $22.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?
Question 2 options:
5.88%
4.25%
4.30%
4.90%
4.94%
15 ) Cash Cow Pty. is expected to pay out 100% of its earnings as dividends in perpetuity. The consensus analyst forecast is that next year's earnings per share, EPS1, will be equal to $3 while the company is expected to have an ROE equal to 10% in perpetuity. The long-term risk-free rate is 3% and the market risk premium is 5%. Assume that Cash Cow Pty's beta=1. According to the dividend discount model, Cash Cow Pty.'s intrinsic value per share is equal to:
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$37.50
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$12.50
Chapter 21 Solutions
Fundamentals Of Financial Management
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