show working please Each of two stocks, A and B, is expected to pay a dividend...
show working please
- Each of two stocks, A and B, is expected to pay a dividend of $7 in the upcoming year. The expected growth rate of dividends is 6% for both stocks. You require a return of 12% on stock A and a return of 12% on stock B. Using the constant-growth DDM, the intrinsic value of stock A _________.
- will be higher than the intrinsic value of stock B
- will be the same as the intrinsic value of stock B
- will be less than the intrinsic value of stock B
- The answer cannot be determined from the information given.
Homework Answers
The intrinsic value of stock A is computed as shown below:
= Dividend in next year / ( required rate of return - growth rate)
= $ 7 / ( 0.12 - 0.06)
= $116.67 Approximately
The intrinsic value of stock B is computed as shown below:
= Dividend in next year / ( required rate of return - growth rate)
= $ 7 / ( 0.12 - 0.06)
= $116.67 Approximately
So, the correct answer is option B.
Feel free to ask in case of any query relating to this question
Add Answer to:
show working please
Each of two stocks, A and B, is expected to pay a dividend...
18. You want to earn a return of 10% on cach of two stocks, A and...
18. You want to earn a return of 10% on cach of two stocks, A and B. Each of the stocks is expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends is 6% for stock A and 5% for stock B A. (4 points) Using the constant-growth DDM, what are the intrinsic values of stock A and Stock B? B. (I point) Which stock has a higher intrinsic value? 19. Sanders, Inc....
A firm is expected to pay a dividend of $6 in the upcoming year. Dividends are...
A firm is expected to pay a dividend of $6 in the upcoming year. Dividends are expected to decline at the rate of 3% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The stock has a beta of 0.5. Using the constant-growth DDM, the intrinsic value of the stock is ________. $100 $50 $200 $150
Cache Creek Manufacturing Company is expected to pay a dividend of $3.36 in the upcoming year....
Cache Creek Manufacturing Company is expected to pay a dividend of $3.36 in the upcoming year. Dividends are expected to grow at 8% per year. The risk-free rate of return is 4%, and the expected return on the market portfolio is 14%. Investors use the CAPM to compute the market capitalization rate and use the constant-growth DDM to determine the value of the stock. The stock's current price is $84. Using the constant-growth DDM, the market capitalization rate is _________.
2. (8 points) Sure Tool Company is expected to pay a dividend of $2 in the...
2. (8 points) Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4% and the expected return on the market portfolio is 14%. The beta of Sure Tool Company's stock is 1.25. a. What is the market's required rate of return on Sure Tool's stocks if CAPM is valid? (4 points) b. If Sure Tool's intrinsic value is $21.00 today, what must be its dividend growth rate? (4...
Dick's Co Pays an annual dividend of $6 to its preferred stock. The rate of return...
Dick's Co Pays an annual dividend of $6 to its preferred stock. The rate of return on T-Bill is 3% and the market risk premium is 8%. What is the intrinsic value of the preferred stock if the beta of the preferred stock is 1.257 Mountain Development Corporation is expected to pay a dividend of $3.00 in the upcoming year. Predicted to grow at the rate of 8% per year. The firms market capitalization rate is 14%. Using the constant...
Cache Creek Manufacturing Company is expected to pay a dividend of $1 in the upcoming year....
Cache Creek Manufacturing Company is expected to pay a dividend of $1 in the upcoming year. Dividends are expected to grow at 7% per year. The stock's current price is $20.00. Using the constant growth DDM, the market capitalization rate is _ A9% B. 12% C. 14% D. 18% The free cash flow to firm is expected to be $2 million and remains constant forever, the WACC is 10% and the cost of equity is 15%. If the market value...
Bravissimi, Inc. is going to pay a dividend of $4, and the dividends are expected to...
Bravissimi, Inc. is going to pay a dividend of $4, and the dividends are expected to grow at a constant rate of 5% every year. The beta of Bravissimi's stock will be constant at 0.62. The T-bill rate is currently estimated to be 5%, and the return of S&P500 index is expected to be 12%. a. What rate of return Bravissimi's investors require? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Market Capitalization rate = ?...
Questions 4-6 4. Firm Y currently pays a dividend of $1.22, which is expected to grow...
Questions 4-6
4. Firm Y currently pays a dividend of $1.22, which is expected to grow indefinitely at 5%. If the current value of the firm's shares based on constant-growth DDM is $32.03, what is the required rate of return? 5. MM Corp, has an ROE of 16% and a plowback ratio of 50%. If the coming year's earnings are expected to be s per share, at what price will the stock sell? The market capitalization rate is 12%. 6....
1. ABC, Inc. is expected to pay an annual dividend per share of $2.80, and investors require a rate of return on S&P...
1. ABC, Inc. is expected to pay an annual dividend per share of $2.80, and investors require a rate of return on S&P500 index is 12%, with the T-bill rate at 6%. What should be the current share price of ABC's stock if ABC's beta is 1.7, with a growth rate of 5%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 2. If firm A has a higher plowback ratio than firm B, then firm A...
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- its Intrinsic...
18. You want to earn a return of 10% on cach of two stocks, A and B. Each of the stocks is expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends is 6% for stock A and 5% for stock B A. (4 points) Using the constant-growth DDM, what are the intrinsic values of stock A and Stock B? B. (I point) Which stock has a higher intrinsic value? 19. Sanders, Inc....
2. (8 points) Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4% and the expected return on the market portfolio is 14%. The beta of Sure Tool Company's stock is 1.25. a. What is the market's required rate of return on Sure Tool's stocks if CAPM is valid? (4 points) b. If Sure Tool's intrinsic value is $21.00 today, what must be its dividend growth rate? (4...
Dick's Co Pays an annual dividend of $6 to its preferred stock. The rate of return on T-Bill is 3% and the market risk premium is 8%. What is the intrinsic value of the preferred stock if the beta of the preferred stock is 1.257 Mountain Development Corporation is expected to pay a dividend of $3.00 in the upcoming year. Predicted to grow at the rate of 8% per year. The firms market capitalization rate is 14%. Using the constant...
Cache Creek Manufacturing Company is expected to pay a dividend of $1 in the upcoming year. Dividends are expected to grow at 7% per year. The stock's current price is $20.00. Using the constant growth DDM, the market capitalization rate is _ A9% B. 12% C. 14% D. 18% The free cash flow to firm is expected to be $2 million and remains constant forever, the WACC is 10% and the cost of equity is 15%. If the market value...
Questions 4-6
4. Firm Y currently pays a dividend of $1.22, which is expected to grow indefinitely at 5%. If the current value of the firm's shares based on constant-growth DDM is $32.03, what is the required rate of return? 5. MM Corp, has an ROE of 16% and a plowback ratio of 50%. If the coming year's earnings are expected to be s per share, at what price will the stock sell? The market capitalization rate is 12%. 6....
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- its Intrinsic...
Most questions answered within 3 hours.
-
Where is the error in this code sequence?
String s1 = "Hello";
String s2 = "ello";...
asked 11 months ago -
Financial data for Joel de Paris, Inc., for last year
follow:
Joel de Paris, Inc.
Balance...
asked 11 months ago -
Consider this reaction:
Al2(SO4)3 (aq)+ BaCl3
(aq) Al2Cl6 (aq)- +
3BaSO4(s) . What is the...
asked 11 months ago -
Suppose that Savneet is considering increasing her
recent random sample from 20 car rentals to 40...
asked 11 months ago -
Trucks arrive at an unloading terminal at an average rate of 120
per hour.
Trucks arrive...
asked 11 months ago -
Why are methanol and ethanol completely soluble in water while
octanol is not very little soluble....
asked 11 months ago -
A facilities manager at a university reads in a research report
that the mean amount of...
asked 11 months ago -
When the CuSO4 is rehydrated by adding water to the anhydrous
compound, is this an endothermic...
asked 11 months ago -
A ray of sunlight is passing from diamond into crown glass; the
angle of incidence is...
asked 11 months ago -
A block of mass 0.249 kg is placed on top of a light, vertical
spring of...
asked 11 months ago -
how do the kidneys compensate in the presences of acidosis
a) trigger hyperventilate
b) reserve acid...
asked 11 months ago -
Question 501 pts
The rental rate of capital to the firm increases. Which of the
following...
asked 11 months ago