Question

Firm A distrubuted dividends to its shareholders for the current year according to the payout ratio...

Firm A distrubuted dividends to its shareholders for the current year according to the payout ratio of 25%. Net profit was 80 million TL. Total shares are 10 million. The dividends are expected to grow at a constant rate of% 12 in the following years. Find the fundamental price per share according to Gordon Model if the Turkey 10 year benchmark government bond in TL yields at% 14 and the risk premium is% 6. If one share of firm A is selling at 32 TL in Borsa Istanbul, would you invest in this stock? Is it undervalued or overpriced?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Net Profit       80.00
Payout ratio 25%
Dividend paid       20.00
No of shares            10
Dividend per share         2.00
Risk free rate 14%
Risk premium 6%
Required return 20%
Current Dividend         2.00
Rate of return 20.00%
Growth Rate 12.00%
Fair share price= =Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate)
Fair share price= =2*(1+0.12)/(0.2-0.12)
Fair share price=       28.00
Since market price is 32 which is higher than the fair price, we can say that the stock is overprice and we should not invest.
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
Firm A distrubuted dividends to its shareholders for the current year according to the payout ratio...
Firm A distrubuted dividends to its shareholders for the current year according to the payout ratio of 25%. Net profit was 80 million TL. Total shares are 10 million . The dividends are expected to grow at a constant rate of %12 in the following years. Find the fundamental price per share according to Gordon Model if the Turkey 10 year benchmark government bond in TL yields at %14 and the risk premium is %6. If one share of firm...
1) Firm A distrubuted dividends to its shareholders for the current year according to the payout...
1) Firm A distrubuted dividends to its shareholders for the current year according to the payout ratio of 25%. Net profit was 80 million TL. Total shares are 10 million . The dividends are expected to grow at a constant rate of %12 in the following years. Find the fundamental price per share according to Gordon Model if the Turkey 10 year benchmark government bond in TL yields at %14 and the risk premium is %6. If one share of...
jj firm issues preferred dividends at an annual rate of 2.7, its current preferred stock price...
jj firm issues preferred dividends at an annual rate of 2.7, its current preferred stock price is 26.67. Assume that the equity beta for jj firm is 0.54. the yield on 10-year treasuries is 2.62% and that the market risk premium for the year is 8%. the company's EPS expected growth is 2%. for this year, the dividends for jj firm are the same for common and preferred stock additionally the price for common stock is 32. what is the...
6. Dividends, repurchases, and firm value Remember that the primary goal of a firm is to...
6. Dividends, repurchases, and firm value Remember that the primary goal of a firm is to maximize shareholder wealth by increasing the firm’s intrinsic value. It is thus important to understand the impact of distributions—both in the form of dividends or stock repurchases—on the firm’s value. Consider the following situation: Jessica is a financial analyst in Smith and T Co. As part of her analysis of the annual distribution policy and its impact on the firm’s value, she makes the...
A firm has $50 million in 10-year debt with a YTM of 9% and a coupon...
A firm has $50 million in 10-year debt with a YTM of 9% and a coupon of 10% ang thus selling at premium of $64.18 It also has 200,000 shares of preferred stock with a $4 dividend that sells for $90 a share and common stockwith a book value of $80 million and a par value of $5 a shre that sells for $50 a share. The common stock pays a dividend of $4 which is expected to grow at...
• AWC does not grow; it generates a constant annual cash flow of $100m per year...
• AWC does not grow; it generates a constant annual cash flow of $100m per year forever • AWC holds $250m in cash and has no debt (it is an all-equity financed firm) • AWC has 100 million of shares outstanding and its shareholders expect a return of 10% on their investment • The value of AMC non-cash assets is thus the present value of a no-growth perpetuity of $100m at 10%1: V(non-cash assets) = $100/10% = $1,000 • The...
Question 80 During the coming year, Gold & Gold wants to increase its free cash flow...
Question 80 During the coming year, Gold & Gold wants to increase its free cash flow by $180 million, which should result in a higher stock price. The CFO has made these projections for the upcoming year: ∙ EBIT is projected to equal $852 million. ∙ Gross capital expenditures are expected to total to $360 million versus depreciation of $120 million, so its net capital expenditures should total $240 million. ∙ The tax rate is 25%. ∙ There will be...
Please answer all 9 questions with explanation. Thank you On May 8, 1984, Hannah Eisenstat graduated...
Please answer all 9 questions with explanation. Thank you On May 8, 1984, Hannah Eisenstat graduated from Louisiana State University. She set to work opening a coffee shop in Baton Rouge called HannaH and found a perfect location in a new development. Using a $50,000 inheritance to finance the venture together with her own sweat equity, she started the business on August 1, 1984 as a sole proprietorship. The shop was profitable in the first year. Hannah found, however, that...
Delta airlines case study Global strategy. Describe the current global strategy and provide evidence about how...
Delta airlines case study Global strategy. Describe the current global strategy and provide evidence about how the firms resources incompetencies support the given pressures regarding costs and local responsiveness. Describe entry modes have they usually used, and whether they are appropriate for the given strategy. Any key issues in their global strategy? casestudy: Atlanta, June 17, 2014. Sea of Delta employees and their families swarmed between food trucks, amusement park booths, and entertainment venues that were scattered throughout what would...
Please answer the following Case analysis questions 1-How is New Balance performing compared to its primary...
Please answer the following Case analysis questions 1-How is New Balance performing compared to its primary rivals? How will the acquisition of Reebok by Adidas impact the structure of the athletic shoe industry? Is this likely to be favorable or unfavorable for New Balance? 2- What issues does New Balance management need to address? 3-What recommendations would you make to New Balance Management? What does New Balance need to do to continue to be successful? Should management continue to invest...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT