Case summary:
Person C and Person GR are the founder and owners of the R Company. This company commercially produces and installs heating, ventilation, and cooling units (HVAC). Both the owners have 50,000 shares of the company’s stock as per the
The R Company has earnings per share of $4.85 and dividends of $75,000 each were paid to the owners of the company. Moreover, there is even the
Characters in the case:
R Company: The firm wants to value their stocks.
Person C: Co-owner of Company R
Person GR: Co-owner of Company R.
To determine: The Company’s value per share of the stock.
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Chapter 7 Solutions
ESSENTIALS OF CORPORATE FINANCE
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- The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows: Po = D₁ (Is - g) Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield? The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price. The capital gains yield on a stock that the investor already owns has a direct relationship with the firm's expected future stock price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.45 at the end of the year. Its dividend is expected to grow at a constant rate of 6.50% per year. If Walter's stock currently trades for $29.00 per share, what is the expected rate of return? 713.36% 657.93% 1,104.83% 14.95% Which of the following conditions must hold true for the constant growth valuation…arrow_forwardWhich of the following is true of a leverage ratio? It is a measure of the extent to which a company uses debt compared to equity. O It is a measure of whether the company will have sufficient cash to pay its bills over the following year. O It is a comparison of the company's net income to its stockholder's equity. O It is a measure of the company's ability to be profitable over the coming year. O It is a measure of the rate at which the company "turns over" its inventory.arrow_forwardWhich of the following statements best describes how a change in a firm’s stock price would affect a stock’s capital gains yield? The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm’s expected future stock price. The capital gains yield on a stock that the investor already owns has a direct relationship with the firm’s expected future stock price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.25 at the end of the year. Its dividend is expected to grow at a constant rate of 9.00% per year. If Walter’s stock currently trades for $26.00 per share, what is the expected rate of return? Which of the following statements will always hold true? The constant growth valuation formula is not appropriate to use for zero growth stocks. It will never be appropriate for a rapidly growing startup company that pays no dividends at present—but is expected to…arrow_forward
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- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
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