ol 21. Expected Price - Dividend Growth. You are evaluating the purchase of Lowe's stock. It just paid an annual dividend of $4.40. You expect the dividend to grow at a rate of 9.0% a year, indefinitely. You estimate that the required rate of return of 10.91% will be adequate compensation for this investment. Assuming that your analysis is correct, what is the most that you would be willing to pay for this stock if you were to purchase it today (Po)? a. $284.56 b. $251.10 c. $170.48 d. $74.95 e. $53.85 W

ol 21. Expected Price - Dividend Growth. You are evaluating the purchase of Lowe's stock. It just paid an annual dividend of $4.40. You expect the dividend to grow at a rate of 9.0% a year, indefinitely. You estimate that the required rate of return of 10.91% will be adequate compensation for this investment. Assuming that your analysis is correct, what is the most that you would be willing to pay for this stock if you were to purchase it today (Po)? a. $284.56 b. $251.10 c. $170.48 d. $74.95 e. $53.85 W

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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7. You are evaluating the purchase of T.P. Toys, Inc. Common stock that just paid a dividend of P1.80. You expect the dividend to grow at a rate of 12% indefinitely. You estimate that a required rate of return of 18% will be adequate compensation for this investment. Assuming that your analysis is correct, what is the most that you would be willing to pay for the common stock if you were to purchase it today? 8. MyBiibii Corp. Decided to undertake a large project. Consequently, there is a need for additonal funds. The finance manager plans to issue a 15% preferred stock to finance the project. The stock will have a par value of P50 per share. If investors’ required rate of return on this investment is currently at 18%, what should be the preferred stock market value? 9. You are considering the purchase of Ahlecs Company stock. You anticipate that the company will pay dividend of P2.25 per share next year and P2.50 per share the followiing year. You believe that you can sell the stock…
A firm's common stock has just paid a $3.00 dividend (Do), which is expected to grow at a constant rate of 6.0 percent each year. The beta of this stock is 1.30, the risk-free rate is 4.0 percent, and the expected return on the market is 10.0 percent. Determine how much you should be willing to pay (the intrinsic value) for this stock today. Assume that CAPM is the correct model for required returns. 536.55 $54.83 $63.97 $73:10 545.69
I need help on this question ASAP: Langkasuka Holdings expects to pay an annual dividend of $1.50 per share, and stock analysts expect the dividend to grow by 7% indefinitely. If Langkasuka Holdings current share price is $25, what would the required rate of return be?
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…
You are considering a purchase of NotSoGreat Company Inc.’s stock, currently available on the NYSE for $70 a share. You have calculated that for this investment the required rate of return is 11.3% and the past dividends were growing in accordance with the GDP growth. The economy is expected to grow 2.5% in the foreseeable future. The latest dividend was $5 per share. How much is the stock worth? To calculate the present value of a company with a dividend policy with stable growth, you can use the Gordon Model, which states that: One share of the NotSoGreat Company is worth $58.24, which is less than the current market price of $70. In this case, you decide not to invest. Questions: You are considering a purchase of UnderDog Inc.’s stock, currently available on the NYSE for $105 a share. You have calculated that for this investment the required rate of return is 11.3% and the past dividends were growing in accordance with the GDP growth. The economy is expected to grow 2.0% in the…
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.
You expect that Microsoft will pay a dividend of $1.50 in one year, $1.75 in two years, and $2.00 in three years. After that, dividends are expected to grow at 3% per year. If your required rate of return is 8%, what should be the price of Microsoft today according to the Dividend Discount Model?
You are planning to invest in common stock of Eagle, Inc. Lately, the firm paid a dividend of P7.80. You have projected that dividends will grow at a rate of 9.0% per year indefinitely. If you want an annual return of 24.0%, what is the most you should pay for the stock now? A. P52.00 B. P56.68 C. P32.50 D. P35.43
Franklin Corporation is expected to pay a dividend of $1.24 per share at the end of the year (D1 = $1.24). The stock sells for $32.40 per share, and its required rate of return is 7.2%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate? (Round your answer to 2 decimal places.) Please work out the problem do not use excel.
I need help on this question ASAP: C. The following questions are related to the stock valuation and the required rate of return. (1) Based on the Gordon growth model, what is an investor's valuation of a stock whose current dividend is £2 per year if dividends are expected to grow at a constantr ate of 6% over a long period of time, and the investor's required rate of return is 10%? (2) Langkasuka Holdings expects to pay an annual dividend of $1.50 per share, and stock analysts expect the dividend to grow by 7% indefinitely. If Langkasuka Holdings current share price is $25, what would the required rate of return be? (3) A start-up technology company has projected earnings per share of $4.50. If the average technology industry P/E ratio is 30, what would the company's projected stock price be?
Suppose that Do = $1.00 and the stock's last closing price is $26.25. It is expected that earnings and dividends will grow at a constant rate of g = 5.00% 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 = 9.00%. The dividend received in period 1 is D₁ = $1.00 × (1+0.0500) = $1.05 and the estimated intrinsic value in the same period is based on the constant growth model: P₁ = P² Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. Price (Dollars) $26.25 PV of dividend at 9.00% (Dollars) Dividend Period (Dollars) 0 $1.00 1.05 1 2 3 4 5 The dividend yield for period 1 is The capital gain yield expected during period 1 is 4.00% O 5.00% and it will 9.00% If it is forecasted that the total return equals 9.00% for the next 5 years, what is the forecasted total return out…
You are considering purchasing stock in a company that is expected to pay a $ 3.34 dividend later this year and you require a return of 7.79%. Assume the dividend will continue to be paid each year thereafter and will grow every year as described below. C What is the maximum price you would be willing to pay if you expect a growth rate of 2%? $ 58.84 (Enter as a whole number with two decimal places, such as 10.19.) What is the maximum price you would be willing to pay if you expect a growth rate of 5%? $ 125.70 What is the maximum price you would be willing to pay if you expect a growth rate of 7%? $452.38 What is the relationship between the price of a stock and the firm's growth rate? O A. The stock price is exactly equal to the growth rate times the dividend. B. As the growth rate investors expect increases, the price they are willing to pay also increases. OC. As the growth rate investors expect increases, the price they are willing to pay decreases. O D. There is no relationship.

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