Question

Assume that you have the following information:- Real rate of interest = 2.0%; Expected Inflation = 3.0%; Required return on the Market = 12.0%; EPS = $2.0; Dividend pay-out ratio = 30.0%; Growth rate in EPS & Dividends per share = 5.0% (constant); Industry P/E multiple is 12; .

Answer the following questions:- 1 - The Required or Expected return on the stock is??? 2 - Next year's dividends per share (D1) is ???? 3 - According to the "Constant Growth" model; the current stock price is ??? 4 - According to the P/E multiple, the stock price is ???

Answer #1

Solutions:

1.Calculation of Required or Expected return on the stock(ke)

Return on Equity=Growth Rate/Retention Ratio

=0.05/.70

**=.07143 or 7.143%**

**Thus,expected return on equity is 7.143%**

b)Next Year Dividend(D1)=EPS*Dividend payout Ratio(1+growth Rate)

=($2*.30)*(1+.05)

=$0.63

Thus D1 is $0.63

c)Calculation of Stock price as per Constant growth model

Stock price=D1/Ke-g

=0.63/7.143%-5%

**=$29.40**

d)Calculation of stock price P/E multiple

Price of Stock=EPS*P/E multiple

=$2*12

**=$24**

Assume that you have the following information:- Real rate of
interest = 2.0%; Expected Inflation = 3.0%; Required return on the
Market = 12.0%; EPS = $2.0; Dividend pay-out ratio = 30.0%; Growth
rate in EPS & Dividends per share = 5.0% (constant); Industry
P/E multiple is 12; . Answer the following questions:- 1 - The
Required or Expected return on the stock is??? 2 - Next year's
dividends per share (D1) is ???? 3 - According to the "Constant...

Assume that you have the following information:- Market Info:-
Real interest rate = 2.0%; Expected inflation = 4.0%; Rm = 12.0%;
Tax = 30.0%. Com. Stock info:- Par value = $1.0 ; Market value
(price) = ?? ; Beta = 1.60 ; No. of outstanding shares =
1,000,000.0 ; EPS $3.0 ; pay-out ratio = 30.0%; Growth in EPS &
Dividends = 5.0% ; Preferred Stock info:- Par value = $100.0;
Dividend per share = 10.0%; Rp=8.0%; No. of outstanding...

Market Info:- Real interest rate = 2.0%; Expected inflation =
4.0%; Rm = 12.0%; Tax = 30.0%.
Com. Stock info:- Par value = $1.0 ; Market value (price) = ?? ;
Beta = 1.60 ; No. of outstanding shares = 1,000,000.0 ; EPS $3.0 ;
pay-out ratio = 30.0%;
Growth in EPS & Dividends = 5.0% ;
Preferred Stock info:- Par value = $100.0; Dividend per share =
10.0%; Rp=8.0%; No. of outstanding shares = 100,000.0; Price =
????
Bonds...

Your required rate of return is 11% and the stock price of "LBJ
Corp." is $55.50. Next year's dividend is forecasted to be $3.50
per share. The growth rate of dividends is a constant 5.0%. "LBJ
Corp." is:
Multiple Choice
Fairly valued
Undervalued
Overvalued

The OWB Company paid $2.1 of dividends this year. If its
dividends are expected to grow at a rate of 3 percent per year,
what is the expected dividend per share for OWB five years from
today?
The current price of ABC stock is $35 per share. If ABC’s
current dividend is $1.5 per share and investors ‘required rate of
return is 10 percent, what is the expected growth rate of dividends
for ABC. Use constant dividend growth model.
Consider...

having the following information:- A $100.0 par value preferred
stock with 10.0% dividend & a 15.0% required return. A $1.0 par
value common stock with $3.0 EPS; a 5.0% risk-free rate; a 6.0%
Market Risk-Premium; a 40.0% pay-out ratio; a 5.0% constant growth
in EPS & dividend per share (g). A 20 years 6.0% coupon
debenture (Non-guaranteed corporate bond) with a Yield-to-maturity
(YTM) of 5.0%. Answer the following questions:-
1 - The preferred stock's price is ???
2 - The...

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 share last year paid a dividend of $3, the company is expected
to have a constant rate of growth of dividends of 4%. The required
rate of return is 12% what according to the Gordon constant growth
model is a fair price for the share? What would be the fair price
for the share of the forecast growth rate of dividends was to be
raised to 9%?

Assume the following: the investor's required rate of
return is 17 percent, the expected level of earnings at the end
of this year (Upper E 1) is $5, the retention ratio is 45
percent, the return on equity (ROE) is 19 percent (that is, it
can earn 19 percent on reinvested earnings), and similar shares
of stock sell at multiples of 6.508 times earnings per share.
Questions: a. Determine the expected growth rate for dividends.
b. Determine the price earnings...

Assume the following: bullet the investor's required rate of
return is 15 percent, bullet the expected level of earnings at
the end of this year (Upper E 1) is $5, bullet the retention
ratio is 50 percent, bullet the return on equity (ROE) is 20
percent (that is, it can earn 20 percent on reinvested earnings),
and bullet similar shares of stock sell at multiples of 10.000
times earnings per share. Questions: a. Determine the expected
growth rate for dividends....

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 9 minutes ago

asked 12 minutes ago

asked 15 minutes ago

asked 15 minutes ago

asked 38 minutes ago

asked 47 minutes ago

asked 51 minutes ago

asked 51 minutes ago

asked 55 minutes ago

asked 59 minutes ago

asked 1 hour ago

asked 1 hour ago