Use Excel for this question: A company announced that it will pay a $2.00 dividend, a $2.50 dividend, and a $3.70 dividend in years 1, 2, and 3, respectively. Ayear 3, the dividends are expected to grow at 6% every year. What is the price of this stock today, given an 7% rate of return?O $327.23O $342.34O $311.46O $389.76

A corporation's payout of profits to its shareholders is known as a dividend. A company that…

Answered: Use Excel for this question: A company…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 16MC

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Conroy Consulting Corporation (CCC) has a current dividend of D0 = $2.5. Shareholders require a 12% rate of return. Although the dividend has been growing at a rate of 30% per year in recent years, this growth rate is expected to last only for another 2 years (g0,1 = g1,2 = 30%). After Year 2, the growth rate will stabilize at gL = 7%. What is CCC’s stock worth today? What is the expected stock price at Year 1? What is the Year 1 expected (1) dividend yield, (2) capital gains yield, and (3) total return? What is its expected dividend yield for the second year? The expected capital gains yield? The expected total return?
CALCULATING THE WACC Here is the condensed 2019 balance sheet for Skye Computer Company (in thousands of dollars): Skyes earnings per share last year were 3.20. The common stock sells for 55.00. last years dividend (D0) was 2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skyes preferred stock pays a dividend of 3.30 per share, and its preferred stock sells for 30.00 per share. The firms before-lax cost of debt is 10%, and its marginal tax rate is 25%. The firms currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skyes beta is 1.516. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals 1.2 million. a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. b. Now calculate the cost of common equity from retained earnings, using the CAPM method. c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r1 and rs as determined by the DCF method, and add that differential to the CAPM value for rs.) d. If Skye continues to use the same market-value capital structure, what is the firms WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock?
Start with the partial model in the file Ch07 P27 Build a Model.xlsx on the textbook’s Web site. Hamilton Landscaping’s dividend growth rate is expected to be 30% in the next year, drop to 15% from Year 1 to Year 2, and drop to a constant 5% for Year 2 and all subsequent years. Hamilton has just paid a dividend of $2.50, and its stock has a required return of 11%. What is Hamilton’s estimated stock price today? If you bought the stock at Year 0, what are your expected dividend yield and capital gains for the upcoming year? What are your expected dividend yield and capital gains for the second year (from Year 1 to Year 2)? Why aren’t these the same as for the first year?
ALPHO Inc. has paid annual dividends of $1.25 and $1.62, over the past two years. Dividends in the future are expected to be $2.00 and $2.45 over the next two years, then grow at a constant rate of 4%. Which one of the following formulas should be used to compute the value of the stock today? P0= D1/(1+k)1+ D2/(1+k)2 + ... + Dn/(1+k)n + Pn/(1+k)n P0= D/k P0= D1/(1+k)n+ g P0= D1/(k-g)
A company has an issue of preferred stock outstanding that pays a $2.30 dividend every year in perpetuity. If this issue currently sells for $41.82 per share, what is the required rate of return? Please use a HP 10bii+ Financial Calculator
NoRagrets, Inc is expected to pay a dividend in year 1 of $2 and a dividend in year 2 of $2.40. After year 2, dividends are expected to grow at the rate of 6% per year. An appropriate required return for the stock is 9%. The stock should be worth _______ today. Select one: a. $79.63 b. $73.21 c. $67.32 d. $73.37
Liquid Systems Inc. has a unique dividend policy. This recent start up is expecting to pay a dividend of $2.00 in the next year, a dividend of $2.50 in year 2, and a dividend of $3.00 in the third year. After year 3, the company is anticipating increasing its dividend by 2.5% per year indefinitely. If the required return by shareholders is currently 12%, what is the price of the stock? answer is 28.96
The XYZ Company paid $1.95 dividend yesterday. Its dividend growth rate is expected to be constant at 21.90% for 2 years, after which dividends are expected to grow at a rate of 5.70% forever. Its required return (rs) is 13.55%. What is the best estimate of the current stock price? Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
Please show all work and formulas in Excel - Company Miami just paid annual dividend of $25 today. The dividend is expected to grow at 8% for the next 3 years, then it will grow at 3% in perpetuity. If stocks of similar company earn 12% annual return, what is the price of a share of Company Miami stock?
ABC Inc., is expected to pay an annual dividend of $5.1 per share next year. The required return is 19.2 percent and the growth rate is 7 percent. What is the expected value of this stock five years from now? Note: Enter your answer rounded off to two decimal points.Do not enter $ or comma in the answer box. For example, if your answer is$12.345 then enter as 12.35 in the answer box.
A company just paid an annual dividend of $0.66. Dividends are expected to grow by 25% in 1 year, 20% in the second year, and 15% in the third year. After that, dividends are expected to continue to grow at an annual rate of 8% indefinitely. If the market's required rate of return on this stock is 17% per year. What is the current price per share?[Keep AT LEAST 4 decimal place on ALL intermediate steps. Round your final answer to 2 decimal places, expressed in dollars and cents (ie $12.34)] Current price =$ Blank 1. Calculate the answer by read surrounding text.
Cape Corp. Will pay a dividend of $2.64 next year. The company has stated that it will maintain a constant growth rate of 4.5% a year forever if you want to return of 12%, how much will you pay for the stock? What if you want a return of 8%? What does it tell you about the relationship between the required rate of return and the stock price? -If procedure and answer could be typed in computer i would appreciate it!!!

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