PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 4, Problem 21PS
Growth opportunities If company Z (see Problem 10) were to distribute all its earnings, it could maintain a level dividend stream of $15 a share. How much is the market actually paying per share for growth opportunities?
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Company Z's earnings and dividends per share are expected to grow indefinitely by 3% a year. Assume next year's dividend per share is $12 and next year's EPS is $6. The market capitalization rate is 9%. If Company Z were to distribute all of its earnings, it could maintain a level dividend stream of $6 a share.
Question: How much is the market actually paying per share for growth opportunities?
The Stieben Company has determined that the following will be true next year:
T(ratio of total assets of sales)=1
P(net profit of margin)=5%
d(dividend pay out ratio)=50%
L(debt equity ratio)=1
a) What is Stieben's sustainable growth rate in sales?
b)Can Stieben's actual growth rate in sales be different from its sustainable growth rate?
Why or why not?
c) How can Stieben change its sustainable growth?
what is the firm's internal growth rate (IGR) if ROA is 14.5%, ROE is 18.8%, the firm retains 65% of its net income, and pays out 35% as dividends?
Chapter 4 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 4 - Stock markets True or false? a. The bid price is...Ch. 4 - Stock quotes a. I would like to sell 1000 shares...Ch. 4 - Stock quotes Here is a small part of the order...Ch. 4 - Stock quotes Go to finance.yahoo.com and get...Ch. 4 - Valuation by comparables Look up P/E and P/B...Ch. 4 - Dividend discount model True or false? a. All...Ch. 4 - Dividend discount model Respond briefly to the...Ch. 4 - Dividend discount model Company X is expected to...Ch. 4 - Dividend discount model Company Y does not plow...Ch. 4 - Constant-growth DCF model Company Zs earnings and...
Ch. 4 - Prob. 11PSCh. 4 - Constant-growth DCF model Pharmecology just paid...Ch. 4 - Prob. 13PSCh. 4 - Cost of equity capital Under what conditions does...Ch. 4 - Cost of equity capital Each of the following...Ch. 4 - Two-stage DCF model Company Z-prime is like Z in...Ch. 4 - Two-stage DCF model Consider the following three...Ch. 4 - Two-stage DCF model Company Qs current return on...Ch. 4 - Two-stage DCF model Compost Science Inc. (CSI) is...Ch. 4 - Growth opportunities If company Z (see Problem 10)...Ch. 4 - Growth opportunities Alpha Corps earnings and...Ch. 4 - Prob. 24PSCh. 4 - Prob. 25PSCh. 4 - Prob. 26PSCh. 4 - Horizon value Suppose the horizon date is set at a...Ch. 4 - Valuing a business Permian Partners (PP) produces...Ch. 4 - Valuing a business Construct a new version of...Ch. 4 - Valuing a business Mexican Motors market cap is...Ch. 4 - Valuing a business Phoenix Corp. faltered in the...Ch. 4 - Constant-growth DCF formula The constant-growth...Ch. 4 - DCF valuation Portfolio managers are frequently...Ch. 4 - Valuing a business Construct a new version of...
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- What proportion of earnings is being plowed back into the firm if the sustainable growth rate is 8% and the firm's ROE is 20%?arrow_forwardGrowth Tech Inc., has earned $ 40 as Earnings Per Share. It proposes to pay $10 as dividend and reinvest the remaining. The return on investment by the firm is 20%. What is the growth rate of the firm’s earnings and dividends assuming a constant payout ratio and return on investment? 20% 18% 15% 12%arrow_forwardUsing the Dividend Growth Approach, suppose that your company is expected to pay a dividend of $1.25 per share next year. There has been a steady growth in dividends of 5.1% per year and the market expects that to continue. The current price is $29. What is the cost of equity?arrow_forward
- Company P currently pays a dividend of £1 per year, and this is not expected to change. It is currently valued on the stock market at £12.50. Company Q currently pays a dividend of 50p a share and is also valued at £12.50. What is the value of the growth opportunities available to Company Q? If this is expressed in % terms as a growth factor per year, what is it?arrow_forwardXYZ Corp. is anticipating a sustained growth rate of 15% per year. Is it possible for them to achieve this growth rate given the following numbers. Debtequity ratio of 0.40 times Profit margin is 5.3 percent Capital Intensity Ratio is 0,75 times to answer: determine what the dividend payout ratio must be. How do you interpret the result?arrow_forwardA firm wants a sustainable growth rate of 2.73 percent while maintaining a dividend payout ratio of 39 percent and a profit margin of 6 percent. The firm has a capital intensity ratio of 2. What is the debt–equity ratio that is required to achieve the firm's desired rate of growth?arrow_forward
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- I need detailed explanation for the following question If a firm bases its growth projection on the rate of sustainable growth, shows positive net income, and has a dividend payout ratio of 30 percent, then the: A. fixed assets will have to increase at the same rate, even if the firm is currently operating at only 78 percent of capacity.B. number of common shares outstanding will increase at the same rate of growth.C. debt-equity ratio will have to increase.D. debt-equity ratio will remain constant while retained earnings increase.E. fixed assets, the debt-equity ratio, and number of common shares outstanding will all increasearrow_forwardConsider the following security: Brous Metalworks Earnings Per Share, Time = 0 $2.00 Dividend Payout Rate 0.250 Return on Equity 0.150 Market Capitalization Rate 0.125 Required: Using the information in the tables above, please calculate the sustainable growth rate, dividends per share, and intrinsic value per share. Then solve for the present value of growth opportunities. (Use cells A5 to B8 from the given information to complete this question.) Brous Metalworks Sustainable Growth Rate Dividends per share (Next Year) Intrinsic Value No-Growth Value Per Share Present Value of Growth Opportunities (PVGO)arrow_forwardCompany Z earnings and dividends per share will grow indefinitely by 4.1% a year if next year's dividend is $9.0. The market capitalization rate is 13.9%. If Company Z were to distribute all its earnings, it could maintain a level dividend stream of $11.3 a share. How much is the market actually paying per share for growth opportunities? A. -11.6 B. 33.8 C. 15.0 D. 10.5arrow_forward
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