Question

Widget Manufacturers Inc. just paid a $3 per share dividend. It is expected that dividends will grow at 10.00% per year for the next 2 years, at 6.00% the third year and 3.00% every year thereafter. Widget’s’ equity beta is 0.90, while the risk-free rate is 3.20% per year and the market risk premium is 6.00% per year. Based on this information, compute the price per share of Widget stock.

**Round your answer to the nearest penny. For example,
$2,371.243 should be entered as 2371.24**

Answer #1

Ans : Expected rate of return = Rf + Beta ( market premium)

= 3.2 % + 0.9 ( 6 % )

= 3.2 % + 5.4 %

= 8.6 %

Price of Widget stock P0 = D 1 /(1+ Ke) + D2 /(1+Ke)^{2}
+ D3 / (1+Ke)^{3} + D4 / ( Ke - g)

D1 = $ 3 * (1.1)

= 3.3

D2 = $ 3.3 *(1.1)

= $ 3.63

D3 = $ 3.63 * (1.06)

= $ 3.8478

D4 = $ 3.8478 * ( 1.03)

= $ 3.9632

P0 = D 1 /(1+ Ke) + D2 /(1+Ke)^{2} + D3 /
(1+Ke)^{3} + D4 / ( Ke - g)

= $ 3.3 / (1+ 0.086) + $ 3.63 / (1 + 0.086)^{2}
+ $ 3.8478 / ( 1 + 0.086 )^{3} + $ 3.9632 / (
0.086 - 0.03 )

= $ 3.3 * 0.9208 + $ 3.63 * 0.84789 + $ 3.8478 * 0.7807 + $ 3.9632 / 0.056

= $ 3.038674 + $ 3.0778 + $ 3.00416 + $ 70.7714

= $ 79.8921

= $ 79.89

= $ 79.89

Schnus Corporation just paid a dividend of $5.75 per share,
and that dividend is expected to grow at 20 percent each year for
the next two years, and at constant rate of 8.50% per year
thereafter. The company’s beta is 1.50, the required return on the
market is 12.50%, and the risk-free rate is 2.40%. Calculate the
company’s intrinsic value.
thankyou !

A company has just paid a dividend of $ 2 per share,
D0=$ 2 . It is estimated that the company's dividend
will grow at a rate of 15 % percent per year for the next 2 years,
then the dividend will grow at a constant rate of 5 % thereafter.
The company's stock has a beta equal to 1.4, the risk-free rate is
4.5 percent, and the market risk premium is 4 percent. What is your
estimate of the...

BF Ltd has just paid a dividend of $3 per share. If the
dividends are expected to grow at a constant rate of 4% per year
indefinitely, what will be the share price (to the nearest dollar)
in 4 years- time, if investors require a return of 6%?
Group of answer choices
A. $182
B. $189
C. $135
D. $156
Currently, your portfolio consists of $3,000 invested in share A
with a beta of 0.7 and $4,000 in share B...

A company, GameMore, has just paid a dividend of $2 per share,
D0=$ 2 . It is estimated that the company's dividend
will grow at a rate of 15% percent per year for the next 2 years,
then the dividend will grow at a constant rate of 6% thereafter.
The company's stock has a beta equal to 1.4, the risk-free rate is
4.5 percent, and the market risk premium is 4 percent. What is your
estimate of the stock's current...

A firm has just paid a dividend of 11, dividends are expected to
grow at 3% in the future. If the firm has a beta of 0.8 and the
market risk premium and risk free rate are 10.7% and 3.2%
respectively, then what is the intrinsic value of this firm
today?

The Red River just paid a dividend of Do = $1.00 per
share, and that dividend is expected to grow at a constant rate of
7.00% per year in the future. The company's beta is 1.30, the
market risk premium is 6.0%, and the risk-free rate is 5.00%. What
is the company's current stock price?
$18.45
$17.62
$16.36
$15.12
$14.31

MasksAreUs Inc. just paid a dividend of $3 per share. Future
dividends are expected to grow at a constant rate of 5% per year.
What is the value of the stock if the required return is 8%?

Mature Conglomerate Corporation (MCC) just paid a dividend of
$1.49 per share, and that dividend is expected to grow at a
constant rate of 6.00% per year in the future. The company's beta
is 1.55, the required return on the market is 12.50%, and the
risk-free rate is 4.00%. What is the intrinsic value for MCC’s
stock? Enter your answer rounded to two decimal places. Do not
enter $ or comma in the answer box. For example, if your answer...

Mature Conglomerate Corporation (MCC) just paid a dividend of
$1.49 per share, and that dividend is expected to grow at a
constant rate of 6.00% per year in the future. The company's beta
is 1.25, the required return on the market is 12.50%, and the
risk-free rate is 4.00%. What is the intrinsic value for MCC’s
stock? Enter your answer rounded to two decimal places. Do not
enter $ or comma in the answer box. For example, if your answer...

Sierra Corporation has just paid a dividend of $2 per share, and
its dividends are expected to grow at a steady rate of 6% for the
foreseeable future. The firm’s shares are currently selling for $30
per share, with an equity beta of 1.2. The risk-free rate is 5% and
expected market return is 12%. What is the firm’s estimated cost of
equity if we were to calculate it as the average of the costs of
equity from the dividend...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 9 minutes ago

asked 9 minutes ago

asked 13 minutes ago

asked 13 minutes ago

asked 14 minutes ago

asked 26 minutes ago

asked 37 minutes ago

asked 47 minutes ago

asked 59 minutes ago

asked 59 minutes ago

asked 1 hour ago

asked 1 hour ago