PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 4, Problem 7PS
“You say stock price equals the present value of future dividends? That’s crazy! All the investors I know are looking for
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Answer this question based on the dividend growth model. If you expect the required rate of return to increase across the board on all equity securities, then you should also expect:
Group of answer choices
An increase in all stock values.
Negative stock values.
An increase or a decrease in all stock values.
A decrease in all stock values.
All stock values to remain constant.
Based on the Dividend Discount Model, if a company’s projected rate of growth in earnings and dividends is expected to increase, what effect will it have on its stock?
Question 9 options:
The value would decrease.
The value would increase.
The value would not change.
It is undeterminable.
Which of the following statements is true about the constant dividend growth model?
Group of answer choices
1. When using a constant growth model to analyze a stock, if an increase in the required rate of return occurs while the growth rate remains the same, this will lead to no change in the value of the stock
2. When using a constant growth model to analyze a stock, if an increase in the required rate of return occurs while the growth rate remains the same, this will lead to a decreased value of the stock
3. When using a constant growth model to analyze a stock, if an increase in the required rate of return occurs while the growth rate remains the same, this will lead to a increased value of the stock
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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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Investors are more concerned with future dividends than historical dividends, so go to ESTIMATES and scroll down to the Consensus Estimates on the screen. Click on the Available Measures menu to toggle between earnings per share and dividends per share. How do analysts expect Apple's payout policy to behave in the future?arrow_forward"The dividend discount model is used to find the price of a stock based on the expected dividends received by the shareholder and the discount rate. Therefore, all else constant, the price of a share of stock will increase if the discount rate decreases." A) True B) Falsearrow_forwardHow 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 futurearrow_forward
- 2. I need help with multiple choice finance home work question Due to the ___________, the total rate of return on a stock can be positive even when the stock's price decreases. Real rate of return. Capital appreciation. Supernormal growth. Interest yield. Dividend yield.arrow_forwardAssuming that the required rate of return is determined by the CAPM, explain how you would usethe dividend growth model to estimate the pricefor Stock i. Indicate what data you would need,and give an example of a “reasonable” value foreach data input. How would this be differentif you used free cash flows as the basis for yourevaluation?arrow_forwardAssuming yourself to be Anna, narrate what you would have read in the file. Your narrative should include answers to the following: Note: 1 Retention ratio = 1 – Dividend payout ratio a) If after changing the dividend policy to a 70% payout, Chatterbox grows at a 3% rate, what would be the implied ACTUAL return on equity and stock price? Does the stock price rise or fall? Why?arrow_forward
- A dividend valuation model such as the following is frequent. where: Pi = the current price of Common Stock i D1 = the expected dividend in Period 1 ki = the required rate of return on Stock i gi = the expected constant-growth rate of dividends for Stock i Identify the three factors that must be estimated for any valuation model, and explain why these estimates are more difficult to derive for common stocks than for bonds . Explain the principal problem involved in using a dividend valuation model to value: (1) companies whose operations are closely correlated with economic cycles. (2) companies that are of very large and mature. (3) companies that are quite small and are growing rapidly.arrow_forwardIf you bought a share of common stock, you would probably expect to receive dividends plus an eventual capital gain. Would the distribution between the dividend yield and the capital gain yield be influenced by the firm’s decision to pay more dividends rather than to retain and reinvest more of its earnings?arrow_forwardDividend changes may be used by management as a credible communication tool to signal investors about future earnings under which of the following dividend policy theories? Select one: a. the clientele effect b. the expectations theory c. the residual dividend theory d. the information effect Question 19 In perfect capital markets there Select one: a. are no income taxes. b. are no flotation costs. c. All of these.arrow_forward
- The price of a stock is: Group of answer choices the future value of all expected future dividends, discounted at the investor’s required return. the present value of all expected future dividends, discounted at the investor’s required return. the present value of all expected future dividends, discounted at the dividend growth rate. the future value of all expected future dividends, discounted at the dividend growth rate.arrow_forwardAbout Dividend Discount Model (DDM) and stock valuation, which statement is NOT CORRECT? In DDM, the risk-adjusted discount rates should be higher than the corresponding treasury spot rates. Stocks that don't pay dividend, such as, Amazon, Google, Facebook, etc., still have huge value. This contradicts DDM model. Other variables held constant, there is an inverse relation between stock prices and interest rates. By DDM, if a company is expected to never ever pays any cash in the future, its stock should be worth zero.arrow_forwardEvaluate the following statement: When a firm pays dividend, its stock price decreases in the market. Therefore, it is always better to buy a stock on the date of dividend payment.arrow_forward
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