None Problem 9-14 Nonconstant DividendsMcCabe Corporation is expected to pay the following dividends over the next four years:$19, $15, $14, and $5.50. Afterward, the company pledges to maintain a constant 3percent growth rate in dividends forever. If the required return on the stock is 10 percent,what is the current share price? (Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.)Current share price

Given information, Dividend in year 1 (D1) = $19Dividend in year 2 (D2) = $15Dividend in year 3 (D3)…

Answered: Problem 9-14 Nonconstant Dividends…

EBK CFIN

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ISBN:9781337671743

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Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 10PROB

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CONSTANT GROWTH Your broker offers to sell you some shares of Bahnsen Co. common stock that paid a dividend of 2.00 yesterday. Bahnsens dividend is expected to grow at 5% per year for the next 3 years. If you buy the stock, you plan to hold it for 3 years and then sell it. The appropriate discount rate is 12%. a. Find the expected dividend for each of the next 3 years; that is, calculate D1, D2, and D3. Note that D0 = 2.00. b. Given that the first dividend payment will occur 1 year from now, find the present value of the dividend stream; that is, calculate the PVs of D1, D2, and D3, and then sum these PVs. c. You expect the price of the stock 3 years from now to be 34.73; that is, you expect P3 to equal 34.73. Discounted at a 12% rate, what is the present value of this expected future stock price? In other words, calculate the PV of 34.73. d. If you plan to buy the stock, hold it for 3 years, and then sell it for 34.73, what is the most you should pay for it today? e. Use Equation 9.2 to calculate the present value of this stock. Assume that g = 5% and that it is constant. f. Is the value of this stock dependent upon how long you plan to hold it? In other words, if your planned holding period was 2 years or 5 years rather than 3 years, would this affect the value of the stock today, P0? Explain.
Problem 9.27 Staggert Corp. will pay dividends of $5.00, $6.25, $4.75, and $3.00 in the next four years. Thereafter, the company expects its dividend growth rate to be constant at 8.5 percent. If the required rate of return is 17.0 percent, what is the current value of the stock? (Round intermediate calculations and final answer to 2 decimal places, e.g. 16.25.) Current value Click if you would like to Show Work for this question: Open Show Work
Problem 9-21 Nonconstant Growth and Quarterly Dividends Mitchell Mineral Water, Incorporated, will pay a quarterly dividend per share of $1.70 at the end of each of the next 12 quarters. Thereafter, the dividend will grow at a quarterly rate of 1.8 percent, forever. The appropriate rate of return on the stock is 14 percent, compounded quarterly. What is the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock price
Problem 9-3 Stock Values The next dividend payment by Im, Incorporated, will be $1.64 per share. The dividends are anticipated to maintain a growth rate of 8 percent forever. The stock currently sells for $31 per share. a. What is the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the expected capital gains yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Dividend yield b. Capital gains yield % %
QUESTION 7 Manchester plc is expected to pay annual dividends of £1.50, £1.75 and £2.00 per share at the end of each of the next three years (i.e., from t-1 to t=3). After year 3, annual dividends are expected to grow at a rate of 2% forever. Assuming that shareholders of Manchester plc. require a rate of return equal to 5% per year, what is the fair value for the share of Manchester plc.? O £95.52 £64.70 O £48.37 O £63.48

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