Question

Use the variable growth model to predict the intrinsic value of the Rhyhorn company stock. Assume...

Use the variable growth model to predict the intrinsic value of the Rhyhorn company stock. Assume that dividends will grow at a variable rate for the next three years (2019, 2020, 2021). After that, the annual rate of growth in dividends is expected to be 6% and stay there for the forseeable future. Starting with the latest (2018) annual dividend of $2.06 pershare, Rhyhorn's earnings and dividends are estimated to grow by 17% in 2019, by 12% in 2020, and by 9% in 2021 before dropping to a 6% rate. Given the risk profile of the firm, assume a minimum required rate of return of at least 11%/

. calculate projected annual dividends over the years '19, '20, '21

B. present value of dividends during the inital variable-growth period

C. what do you believe the price of rhyhorn stock will be at the end of the initial growth period ('21)?

D. having determined the expected future price of rhyhorn stock in part c, discount the price of the stock back to its present value.

E. determine the total intrinsic value of rhyhorn stock based on your previous calculations

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
Assume a stock that is expected to benet from supernormal growth of 8% in dividends per...
Assume a stock that is expected to benet from supernormal growth of 8% in dividends per year over the next six years. Following this period, dividends are expected to grow at a constant rate of 3% per year forever. The stock paid a dividend of 5.50 last year. Dividends are paid to shareholders once a year, the next payment is due one year from today, the second payment two years from today, etc. The required rate of return on the...
The value of a share of common stock depends on the cash flows it is expected...
The value of a share of common stock depends on the cash flows it is expected to provide, and those flows consist of the dividends the investor receives each year while holding the stock and the price the investor receives when the stock is sold. The final price includes the original price paid plus an expected capital gain. The actions of the marginal investor determine the equilibrium stock price. Market equilibrium occurs when the stock's price is -Select-less thanequal togreater...
The Dividend-Discount Model of stock valuation: A) Is an application of the net present value formula....
The Dividend-Discount Model of stock valuation: A) Is an application of the net present value formula. B) Takes the net present value of expected dividends and add it to the future sale price of the stock. C) Takes the net present value of the expected future price of the stock and add the annual dividend. D) Takes the annual dividend, adds it to the expected future selling price and divides by the number of years to get the current price.
QUESTION 2. Remember that just like projects, bonds, or any other asset, the intrinsic value (fair...
QUESTION 2. Remember that just like projects, bonds, or any other asset, the intrinsic value (fair value of any asset) is just the present value of all of its future cash flows. For stocks, these future cash flows are dividends. Even if a firm does not currently pay any dividends, it is fair to assume that it will in the future. Even if the investor does not plan on holding on to a stock for a very long time, whomever...
In the constant growth model, which variable change will make the value of a stock go...
In the constant growth model, which variable change will make the value of a stock go up, other things constant? a. A decrease in the next expected dividend. b. A decrease in the growth rate of dividends. c. An increase in the required return. d. A decrease in the required return.
In the constant growth model, which variable change will make the value of a stock go...
In the constant growth model, which variable change will make the value of a stock go up, other things constant? a. A decrease in the next expected dividend. b. A decrease in the growth rate of dividends. c. An increase in the required return. d. A decrease in the required return.
In the constant growth model, which variable change will make the value of a stock go...
In the constant growth model, which variable change will make the value of a stock go up, other things constant? a. A decrease in the next expected dividend. b. A decrease in the growth rate of dividends. c. An increase in the required return. d. A decrease in the required return.
Nina, a lead fundamental analyst was trying to calculate the intrinsic value of ABC Co. stock....
Nina, a lead fundamental analyst was trying to calculate the intrinsic value of ABC Co. stock. She had learnt about dividend discount models as an application of time value of money to price equity instruments. She projected the expected dividends which ABC Co. will be paying. ABC Co. is expected to pay a dividend of $5 at the end of second year with an expected dividend payment of zero for first year. The dividend is expected to grow at 5%...
16. Which of the following statements is CORRECT? (2pts) a. The constant growth model takes into...
16. Which of the following statements is CORRECT? (2pts) a. The constant growth model takes into consideration the capital gains investors expect to earn on a stock b. It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant. c. If a stock has a required rate of return ke = 12%, and if its dividend is expected to grow at a constant rate of 5%,...
Assume you are considering a stock which oddly pays a dividend at the end of each...
Assume you are considering a stock which oddly pays a dividend at the end of each year. Your required rate of return is 8.5%. The expected dividend at the end of year 1 is $5.50. In year 2, the dividend is expected to grow by 11%. The year after that, the dividend is expected to be up 12%. In year 4 and 5 it is expected to grow at 15%. (1) If your holding period for this stock is 5...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT