Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 7, Problem 7.11P
Learning Goal 4
P7- 11 Common stock value: Constant growth The common stock of Barr Labs Inc. trades for $114 per share. Investors expect the company to pay a $1.35 dividend next year, and they expect that dividend to grow at a constant rate forever. If investors require a 15.8% return on this stock, what
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Diana Corporation anticipates a 10 percent growth in net income and dividends. Next year, the company expects earnings per share of P5 and dividends per share of P3. Diana will be having its first public issuance of common stock. The stock will be issued at P40 per share.
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1. What is the P/E ratio?
2. What is the required rate of return on the stock?
Valuing common Stock) Assume the following:
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• The expected level of earnings at the end of this year (E1) is $5.00.
• The retention ratio is 50 percent. • The return on equity (ROE) is 20 percent (that is, it can earn 20 percent on reinvested earnings). • Similar shares of stock sell at multiples of 10 times earnings per share.
a. Determine the expected growth rate for dividends.
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c. What is the stock price using the P/E ratio valuation method? d. What is the stock price using the dividend discount model?
e. What would happen to the P/E ratio (P/E1) and stock price if the firm could earn 25 percent on reinvested earnings (ROE)?
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Perry, Inc., paid a dividend of $2.50 yesterday. You are interested in investing in this company, which has forecasted a constant-growth rate of 7.0 percent for its dividends, forever. The required rate of return is 18.5 percent.
a.
Compute the expected dividends D1, D2, D3 and D4. (Round answers to 3 decimal places, e.g. 15.250.)
D1
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D2
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D3
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D4
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Chapter 7 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 7.1 - What are the key differences between debt and...Ch. 7.2 - What risks do common stockholders take that other...Ch. 7.2 - Prob. 7.3RQCh. 7.2 - Explain the relationships among authorized shares,...Ch. 7.2 - Prob. 7.5RQCh. 7.2 - Prob. 7.6RQCh. 7.2 - Explain the cumulative feature of preferred stock....Ch. 7.3 - Describe the events that occur in an efficient...Ch. 7.3 - Prob. 7.9RQCh. 7.3 - Describe, compare, and contrast the following...
Ch. 7.3 - Describe the free cash flow valuation model, and...Ch. 7.3 - Explain each of the three other approaches to...Ch. 7.4 - Prob. 7.13RQCh. 7.4 - Assuming that all other variables remain...Ch. 7 - Prob. 7.1STPCh. 7 - Learning Goal 5 ST7-2 Free cash flow valuation...Ch. 7 - Prob. 7.1WUECh. 7 - Prob. 7.2WUECh. 7 - Prob. 7.3WUECh. 7 - Prob. 7.4WUECh. 7 - Prob. 7.5WUECh. 7 - Prob. 7.6WUECh. 7 - Authorized and available shares Aspin...Ch. 7 - Preferred dividends Acura Labs Inc. has an...Ch. 7 - Learning Goal 2 P7-3 Preferred dividends In each...Ch. 7 - Learning Goal 2 P7-4 Convertible preferred stock...Ch. 7 - Learning Goal 4 P7-5 Preferred stock valuation TXS...Ch. 7 - Prob. 7.6PCh. 7 - Preferred stock valuation Jones Design wishes to...Ch. 7 - Learning Goal 4 P7-8 Common stock value: Constant...Ch. 7 - Common stock value: Constant growth McCracken...Ch. 7 - Learning Goal 4 P7- 11 Common stock value:...Ch. 7 - Prob. 7.12PCh. 7 - Prob. 7.13PCh. 7 - Learning Goal 4 P7-14 Common stock value: Variable...Ch. 7 - Prob. 7.15PCh. 7 - Prob. 7.16PCh. 7 - Learning Goal 5 P7-17 Free cash flow valuation...Ch. 7 - Prob. 7.20PCh. 7 - Prob. 7.21PCh. 7 - Prob. 7.22PCh. 7 - Prob. 7.23PCh. 7 - Integrative: Risk and valuation Hamlin Steel...Ch. 7 - Prob. 7.25P
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