Question

You are trying to estimate the value of McGillicutty's stock. Your research has indicated that you...

You are trying to estimate the value of McGillicutty's stock. Your research has indicated that you can expect a growth rate in their cash flows (and dividends paid) of 15%, 13%, 10% and 8% over the next 4 years, followed by a constant growth rate of 4% thereafter. The most recent dividend paid by the company was $2.50 per share. The company has a very high level of risk - their beta is 2.4. The risk free rate is 2.2% and the expected return on the market is 9.5%. a. What is the required rate of return on the stock? b. What are the dividends that are expected to be paid over the next 5 years? c. What is the value of the stock today?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
9. ABC, Inc stock currently sells for $45 per share. The market requires a 9 percent...
9. ABC, Inc stock currently sells for $45 per share. The market requires a 9 percent return on the firm's stock. If the company maintains a constant 5.5 percent growth rate in dividends, what was the most recent dividend per share paid on the stock? 10. ABC, Inc pays dividends annually. The expected dividend payment in year 5 is $12.00. The growth rate, which is currently 15%, is expected to decline linearly over six years, between year 5 and year...
1. An investor requires a return of 12 percent. A stock sells for $18, it pays...
1. An investor requires a return of 12 percent. A stock sells for $18, it pays a dividend of $1, and the dividends compound annually at 6 percent. What should the price of the stock be? 2. You are considering a stock A that pays a dividend of $1. The beta coefficient of A is 1.3. The risk free return is 6%, while the market average return is 13%. a. What is the required return for Stock A? b. If...
1- In practice, a common way to value a share of stock when a company pays...
1- In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the “terminal” stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.15. The dividends are expected to grow at 10 percent over the next five years. The company has a payout ratio of 40 percent and a benchmark PE of 19. The required...
2. You are considering the purchase of a stock that just paid a dividend of $6.00....
2. You are considering the purchase of a stock that just paid a dividend of $6.00. You expect this stock to have a growth rate of 20 percent for the next 2 years, and a long-run normal growth rate of 8 percent thereafter. The risk free- rate is 2 percent, the return on the market is 10 percent, and the company has a beta of 1.2. What is the maximum price you should be willing to pay for this stock?
(a) Company A has issued perpetual preferred stock with a par value of $100. The stock...
(a) Company A has issued perpetual preferred stock with a par value of $100. The stock pays an annual dividend of $6 and its current price is $60. (i) What is the dividend yield of Company A’s preferred stock? (ii) What is the total return of holding Company A’s preferred stock for year 1?   (b) Company B has just paid a dividend of $2.45 per share. The company will increase its dividend by 20% next year and then reduce its...
Would you explain how you get the following answer $47.5 The risk free rate is 5%,...
Would you explain how you get the following answer $47.5 The risk free rate is 5%, the return on the market is 10%, and Stability Inc. has a beta of 2. The most recent dividend was $2. Dividends are expected to increase at a constant rate of 100 percent for the next three years, decrease by 50% for two years, and then increase at a constant rate of 5% rate thereafter. What is the value of the stock today?
Estimate the current value of Morris Industries' common stock, P0 = ? Assume The most recent...
Estimate the current value of Morris Industries' common stock, P0 = ? Assume The most recent annual dividend payment of Morris Industries was $4 per share. The firm's financial manager expects that these dividends will increase at an 8% annual rate over the next 3 years. At the end of the 3 years the firm's mature product line is expected to result in a slowing of the dividend growth rate to 5% per year forever. The firm's required return (r)...
Consider the following information which relates to a given company: Item 2019 Value Earnings Per Share...
Consider the following information which relates to a given company: Item 2019 Value Earnings Per Share $6.96 Price Per Share (Common Stock) $41.68 Book Value (Common Stock Equity) $56 Million Total Common Stock Outstanding 2.3 Million Dividend Per Share $3.73                                                                                Analysts expect that the company could maintain a constant annual growth rate in dividends per share of 6% in the future, or possibly 9% for the next 2 years and 7% thereafter. In addition, it is expected that the...
A company is trying to estimate its cost of equity. The risk free rate of return...
A company is trying to estimate its cost of equity. The risk free rate of return is 4.75% while the required rate of return is 9.75%. The company's beta is 1.2. The current stock price is $45.00 and the last dividend paid was $2.25; the expected constant growth rate is 5.00%. What is the estimated cost of equity using the Capital Asset Pricing Model? What is the estimated cost of equity using the Discounted Cash Flow approach? Why do the...
What is the multi-stage DDM applied price of a stock which is expected to begin paying...
What is the multi-stage DDM applied price of a stock which is expected to begin paying a $3 dividend 6 years from now. The firm is expected to grow dividends by 15% per year for the next four years after that, followed by a constant growth rate of 4% thereafter forever. Assume that investors require a rate of return of 16% for this firm’s common shares. $25.75 $16.36 $11.23 $18.75
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT