Intermediate Financial Management
Intermediate Financial Management
14th Edition
ISBN: 9780357516782
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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Chapter 8, Problem 8P
Summary Introduction

To determine: The stock price is expected 1 year from now and estimated required rate of return.

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Woidtke Manufacturing’s stock currently sells for $22 a share. The stockjust paid a dividend of $1.20 a share (i.e., D0 = $1.20), and the dividend isexpected to grow forever at a constant rate of 10% a year. What stock priceis expected 1 year from now? What is the estimated required rate of returnon Woidtke’s stock (assume the market is in equilibrium with the requiredreturn equal to the expected return)?
Suppose that Do = $1.00 and the stock's last closing price is $15.85. It is expected that earnings and dividends will grow at a constant rate of g = 3.50% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium, and the most appropriate required rate of return is rs = 10.00%. The dividend received in period 1 is D1 = $1.00 × (1+0.0350) = $1.04 and the estimated intrinsic value in the same period is based on the D2 constant growth model: P₁: TS-8 Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. Activity Frame Dividend Price PV t 10.00% Period (Dollars) (Dollars) (Dollars) 0 $1.00 $15.85 1 1.03 16.46 $0.94 2 1.07 17.08 $0.97 3 1.11 17.69 $1.01 4 1.15 18.31 $0.97 5 1.19 18.92 $0.94 The dividend yield for period 1 is and it will The capital gain yield expected during period 1 is and it will each period. each period. If it is…
Woidtke Manufacturing's stock currently sells for $16 a share. The stock just paid a dividend of $2.60 a share (i.e., D0 = $2.60), and the dividend is expected to grow forever at a constant rate of 10% a year. What stock price is expected 1 year from now? Do not round intermediate calculations. Round your answer to the nearest cent. What is the estimated required rate of return on Woidtke's stock (assume the market is in equilibrium with the required return equal to the expected return)? Do not round intermediate calculations. Round the answer to two decimal places.
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY