ESSENTIALS OF CORPORATE FINANCE
17th Edition
ISBN: 9781260665857
Author: Ross
Publisher: MCG CUSTOM
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Chapter 7, Problem 32QP
Stock Valuation. Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders.
a. Suppose a company currently pays an annual dividend of $2.20 on its common stock in a single annual installment, and management plans on raising this dividend by 6 percent per year indefinitely. If the required return on this stock is 12 percent, what is the current share price?
b. Now suppose the company in part (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just paid a dividend of $.55 per share, as it has for the previous three quarters. What is your value for the current share price now? (Hint: Find the equivalent annual end-of-year dividend for each year.) Comment on whether you think this model of stock valuation is appropriate.
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Students have asked these similar questions
Most corporations pay quarterly dividends on their common stock rather than annual
dividends. Barring any unusual circumstances during the year, the board raises, lowers,
or maintains the current dividend once a year and then pays this dividend out in equal
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a. Suppose a company currently pays an annual dividend of $3.60 on its common stock
in a single annual installment, and management plans on raising this dividend by 3.4
percent per year indefinitely. If the required return on this stock is 10.5 percent, what is
the current share price? (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
b. Now suppose the company in (a) actually pays its annual dividend in equal quarterly
installments; thus, the company has just paid a dividend of $.90 per share, as it has for
the previous three quarters. What is your value for the current share price now? (Hint.
Find the equivalent annual end-of-year dividend…
Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders.
Suppose a company currently pays an annual dividend of $3.00 on its common stock in a single annual installment, and management plans on raising this dividend by 6.25 percent per year, indefinitely. If the required return on this stock is 9 percent, what is the current share price?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
Now suppose the company in part (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just paid a dividend of $.75 per share, as it has for the previous three quarters. What is your value for the current share price now? (Hint: Find the equivalent annual end-of-year…
Most corporations pay quarterly dividends on their common stock rather than annual
dividends. Barring any unusual circumstances during the year, the board raises, lowers,
or maintains the current dividend once a year and then pays this dividend out in equal
quarterly installments to its shareholders.
a. Suppose a company currently pays an annual dividend of $3.20 on its common stock
in a single annual installment, and management plans on raising this dividend by 6.5
percent per year indefinitely. If the required return on this stock is 8 percent, what is
the current share price? (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
b. Now suppose the company in part (a) actually pays its annual dividend in equal
quarterly installments; thus, the company has just paid a dividend of $.80 per share, as
it has for the previous three quarters. What is your value for the current share price
now? (Hint: Find the equivalent annual end-of-year dividend…
Chapter 7 Solutions
ESSENTIALS OF CORPORATE FINANCE
Ch. 7.1 - What are the relevant cash flows for valuing a...Ch. 7.1 - Does the value of a share of stock depend on how...Ch. 7.1 - What is the value of a share of stock when the...Ch. 7.1 - What is a target price on a stock? How is it...Ch. 7.2 - Prob. 7.2ACQCh. 7.2 - Prob. 7.2BCQCh. 7.2 - Why is preferred stock called preferred?Ch. 7.3 - Prob. 7.3ACQCh. 7.3 - Prob. 7.3BCQCh. 7.3 - Prob. 7.3CCQ
Ch. 7.3 - Prob. 7.3DCQCh. 7 - Section 7.1What is the total return for a stock...Ch. 7 - Prob. 7.2CCh. 7 - LO1 7.1.Stock Valuation. Why does the value of a...Ch. 7 - LO1 7.2.Stock Valuation. A substantial percentage...Ch. 7 - Dividend Policy. Referring to the previous...Ch. 7 - LO1 7.4.PRINTED BY: V.SwathiPpfeya@spi-global.com....Ch. 7 - LO1 7.5.Common versus Preferred Stock. Suppose a...Ch. 7 - Prob. 6CTCRCh. 7 - Prob. 7CTCRCh. 7 - LO1 7.8.Dividends and Earnings. Is it possible for...Ch. 7 - Prob. 9CTCRCh. 7 - Prob. 10CTCRCh. 7 - Prob. 11CTCRCh. 7 - Prob. 12CTCRCh. 7 - Prob. 13CTCRCh. 7 - Prob. 14CTCRCh. 7 - Stock Values. Gilmore, Inc., just paid a dividend...Ch. 7 - Stock Values. The next dividend payment by Dizzle,...Ch. 7 - Prob. 3QPCh. 7 - Stock Values. Take Time Corporation will pay a...Ch. 7 - Stock Valuation. Mitchell, Inc., is expected to...Ch. 7 - Stock Valuation. Suppose you know that a companys...Ch. 7 - Stock Valuation. Burkhardt Corp. pays a constant...Ch. 7 - Valuing Preferred Stock. Smiling Elephant, Inc.,...Ch. 7 - Prob. 9QPCh. 7 - Growth Rates. The stock price of Baskett Co. is 73...Ch. 7 - Valuing Preferred Stock. E-Eyes.com has a new...Ch. 7 - Stock Valuation. Wesen Corp. will pay a dividend...Ch. 7 - Prob. 13QPCh. 7 - Prob. 14QPCh. 7 - Nonconstant Growth. Metallica Bearings, Inc., is a...Ch. 7 - Nonconstant Dividends. Hot Wings, Inc., has an odd...Ch. 7 - Nonconstant Dividends. Apocalyptica Corporation is...Ch. 7 - Supernormal Growth. Burton Corp. is growing...Ch. 7 - Negative Growth. Antiques R Us is a mature...Ch. 7 - Finding the Dividend. Gontier Corporation stock...Ch. 7 - LO3 21. PRINTED BY: V.SwathiPpreya@spi-gIobal.com....Ch. 7 - Stock Valuation. According to the 2015 Value Line...Ch. 7 - Prob. 23QPCh. 7 - Negative Growth. According to the 2015 Value Line...Ch. 7 - Prob. 25QPCh. 7 - Stock Valuation and PE. Sully Corp. currently has...Ch. 7 - Stock Valuation and PE. You have found the...Ch. 7 - Prob. 28QPCh. 7 - Stock Valuation and PE. Davis, Inc., currently has...Ch. 7 - PE and Terminal Stock Price. In practice, a common...Ch. 7 - Capital Gains versus Income. Consider four...Ch. 7 - Stock Valuation. Most corporations pay quarterly...Ch. 7 - Prob. 1CCCh. 7 - Prob. 2CC
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