Question

**Quantitative Problem 1:** Hubbard Industries just
paid a common dividend, D_{0}, of $1.00. It expects to grow
at a constant rate of 3% per year. If investors require a 10%
return on equity, what is the current price of Hubbard's common
stock? Do not round intermediate calculations. Round your answer to
the nearest cent.

$ per share

Zero Growth Stocks:

The constant growth model is sufficiently general to handle the case of a zero growth stock, where the dividend is expected to remain constant over time. In this situation, the equation is:

Note that this is the same equation developed in Chapter 5 to value a perpetuity, and it is the same equation used to value a perpetual preferred stock that entitles its owners to regular, fixed dividend payments in perpetuity. The valuation equation is simply the current dividend divided by the required rate of return.

**Quantitative Problem 2:** Carlysle Corporation
has perpetual preferred stock outstanding that pays a constant
annual dividend of $1.50 at the end of each year. If investors
require an 9% return on the preferred stock, what is the price of
the firm's perpetual preferred stock? Round your answer to the
nearest cent.

$ per share

Nonconstant Growth Stocks:

For many companies, it is not appropriate to assume that dividends will grow at a constant rate. Most firms go through life cycles where they experience different growth rates during different parts of the cycle. For valuing these firms, the generalized valuation and the constant growth equations are combined to arrive at the nonconstant growth valuation equation:

Basically, this equation calculates the present value of dividends received during the nonconstant growth period and the present value of the stock's horizon value, which is the value at the horizon date of all dividends expected thereafter.

**Quantitative Problem 3:** Assume today is
December 31, 2013. Imagine Works Inc. just paid a dividend of $1.20
per share at the end of 2013. The dividend is expected to grow at
15% per year for 3 years, after which time it is expected to grow
at a constant rate of 5.5% annually. The company's cost of equity
(r_{s}) is 9.5%. Using the dividend growth model (allowing
for nonconstant growth), what should be the price of the company's
stock today (December 31, 2013)? Do not round intermediate
calculations. Round your answer to the nearest cent.

$ per share

Answer #1

Quantitative Problem 1: Hubbard Industries just
paid a common dividend, D0, of $1.30. It expects to grow
at a constant rate of 4% per year. If investors require a 10%
return on equity, what is the current price of Hubbard's common
stock? Round your answer to the nearest cent. Do not round
intermediate calculations.
$ per share
Zero Growth Stocks:
The constant growth model is sufficiently general to handle the
case of a zero growth stock, where the dividend is...

A) Hubbard Industries just paid a common dividend, D0, of $2.00.
It expects to grow at a constant rate of 4% per year. If investors
require a 9% return on equity, what is the current price of
Hubbard's common stock? Do not round intermediate calculations.
Round your answer to the nearest cent.
B) Carlysle Corporation has perpetual preferred stock
outstanding that pays a constant annual dividend of $1.20 at the
end of each year. If investors require an 7% return...

Hubbard Industries just paid a common dividend, D0, of $1.20. It
expects to grow at a constant rate of 2% per year. If investors
require a 12% return on equity, what is the current price of
Hubbard's common stock?
Carlysle Corporation has perpetual preferred stock outstanding
that pays a constant annual dividend of $1.30 at the end of each
year. If investors require an 6% return on the preferred stock,
what is the price of the firm's perpetual preferred stock?...

Hubbard Industries just paid a common dividend, D0, of $1.70. It
expects to grow at a constant rate of 3% per year. If investors
require a 11% return on equity, what is the current price of
Hubbard's common stock? Round your answer to the nearest cent. Do
not round intermediate calculations.

11)
Holt Enterprises recently paid a dividend, D0, of
$3.00. It expects to have nonconstant growth of 22% for 2 years
followed by a constant rate of 7% thereafter. The firm's required
return is 14%.
How far away is the horizon date?
The terminal, or horizon, date is the date when the growth rate
becomes nonconstant. This occurs at time zero.
The terminal, or horizon, date is the date when the growth rate
becomes constant. This occurs at the beginning...

3. Problem 9.04 (Nonconstant Growth Valuation)
Holt Enterprises recently paid a dividend, D0, of
$1.25. It expects to have nonconstant growth of 25% for 2 years
followed by a constant rate of 5% thereafter. The firm's required
return is 14%.
How far away is the horizon date?
The terminal, or horizon, date is the date when the growth rate
becomes constant. This occurs at the end of Year 2.
The terminal, or horizon, date is infinity since common stocks
do not...

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...

Holt Enterprises recently paid a dividend, D0, of $1.00. It
expects to have nonconstant growth of 18% for 2 years followed by a
constant rate of 9% thereafter. The firm's required return is
10%.
How far away is the horizon date?
The terminal, or horizon, date is the date when the growth rate
becomes constant. This occurs at the end of Year 2.
The terminal, or horizon, date is infinity since common stocks
do not have a maturity date.
The...

Holt Enterprises recently paid a dividend, D0, of
$1.75. It expects to have nonconstant growth of 16% for 2 years
followed by a constant rate of 3% thereafter. The firm's required
return is 16%.
How far away is the horizon date?
The terminal, or horizon, date is infinity since common stocks
do not have a maturity date.
The terminal, or horizon, date is Year 0 since the value of a
common stock is the present value of all future expected...

Holt Enterprises recently paid a dividend, D0, of
$3.00. It expects to have nonconstant growth of 15% for 2 years
followed by a constant rate of 6% thereafter. The firm's required
return is 19%.
How far away is the horizon date?
The terminal, or horizon, date is infinity since common stocks
do not have a maturity date.
The terminal, or horizon, date is Year 0 since the value of a
common stock is the present value of all future expected...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 32 minutes ago

asked 47 minutes ago

asked 50 minutes ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 4 hours ago

asked 4 hours ago

asked 4 hours ago

asked 4 hours ago