HomeworkLib
Question

Fincorp will pay a year-end dividend of $3.60 per share, which is expected to grow at...

Fincorp will pay a year-end dividend of $3.60 per share, which is expected to grow at a rate of 3% for the indefinite future. The discount rate is 12%.

a. What is the stock selling for? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. If earnings are $3.80 a share, what is the implied value of the firm’s growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

a) D1= 3.6 G= 3% and Re= 12%

P0= 3.6*1.03/(0.12-0.03)

= 41.2

b) PV of growth oppurtunity= E1/(re-g) - E1/re

3.8/0.09 - 3.8/0.12

42.22- 31.67= 10.5533

0 0
Add a comment
Know the answer?
Add Answer to:
Fincorp will pay a year-end dividend of $3.60 per share, which is expected to grow at...
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. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • The FI Corporation's dividends per share are expected to grow indefinitely by 6% per year a....

    The FI Corporation's dividends per share are expected to grow indefinitely by 6% per year a. If this year's year-end dividend is $9 and the market capitalization rate is 12% per year, what must the current stock price be according to the DDM? (Do not round intermediate calculations. Round your answer to 2 decimal places.]) Current stock price b. If the expected earnings per share are $15, what is the implied value of the ROE on future investment opportunities? (Do...

  • The FI Corporation’s dividends per share are expected to grow indefinitely by 8% per year. a....

    The FI Corporation’s dividends per share are expected to grow indefinitely by 8% per year. a. If this year’s year-end dividend is $4.00 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM? b. If the expected earnings per share are $16.00, what is the implied value of the ROE on future investment opportunities? (Round your answer to 2 decimal places.) c. How much is the market paying per share...

  • The Fl Corporation's dividends per share are expected to grow indefinitely by 8% per year. a....

    The Fl Corporation's dividends per share are expected to grow indefinitely by 8% per year. a. If this year's year-end dividend is $3.00 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM? b. If the expected earnings per share are $9.00, what is the implied value of the ROE on future investment opportunities? (Round your answer to 2 decimal places.) c. How much is the market paying per share...

  • The Fl Corporation's dividends per share are expected to grow indefinitely by 8% per year a....

    The Fl Corporation's dividends per share are expected to grow indefinitely by 8% per year a. If this year's year-end dividend is $4.00 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM? Current stock price b. If the expected earnings per share are $12.00, what is the implied value of the ROE on future investment opportunities? (Round your answer to 2 decimal places.) Value of ROE c. How much...

  • Problem 18-11 The Fl Corporation's dividends per share are expected to grow indefinitely by 5% per...

    Problem 18-11 The Fl Corporation's dividends per share are expected to grow indefinitely by 5% per year. a. If this year's year-end dividend is $7.50 and the market capitalization rate is 8% per year, what must the current stock price be according to the DOM? Current stock price b. If the expected earnings per share are $15.00, what is the implied value of the ROE on future investment opportunities? (Round your answer to 2 decimal places.) Value of ROE c....

  • Company's Z's earnings and dividends per share are expected to grow indefinitely by 3% a year....

    Company's Z's earnings and dividends per share are expected to grow indefinitely by 3% a year. Assume next year's dividend per share is $2 and next year's EPS is $3. The market capitalization rate is 9%. If Company Z were to distribute all of its earnings, it could maintain a level dividend stream of $3 a share. How much is the market actually paying per share for growth opportunities? (Do not round intermediate calculations. Negative amount should be indicated by...

  • Constant Growth Valuation Boehm Incorporated is expected to pay a $3.60 per share dividend at the...

    Constant Growth Valuation Boehm Incorporated is expected to pay a $3.60 per share dividend at the end of this year (i.e., D1 = $3.60). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 15%. What is the estimated value per share of Boehm's stock? Round your answer to the nearest cent.

  • Che The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 26% p...

    Che The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 26% per year for the next three years and then to level off to 5% per year forever. You think the appropriate market capitalization rate is 21% per year. a. What is your estimate of the intrinsic value of a share of the stock? (Use intermediate calculations rounded to 4 decimal places. Round your answer to 2...

  • Suppose that a firm’s recent earnings per share and dividend per share are $2.10 and $1.10,...

    Suppose that a firm’s recent earnings per share and dividend per share are $2.10 and $1.10, respectively. Both are expected to grow at 9 percent. However, the firm’s current P/E ratio of 20 seems high for this growth rate. The P/E ratio is expected to fall to 16 within five years. Compute the dividends over the next five years. (Do not round intermediate calculations. Round your final answer to 3 decimal places.) Dividends Years First year $ Second year $...

  • Suppose that a firm’s recent earnings per share and dividend per share are $2.60 and $1.60,...

    Suppose that a firm’s recent earnings per share and dividend per share are $2.60 and $1.60, respectively. Both are expected to grow at 10 percent. However, the firm’s current P/E ratio of 25 seems high for this growth rate. The P/E ratio is expected to fall to 21 within five years. Compute the dividends over the next five years Calculate the present value of these cash flows using a 12 percent discount rate. (Do not round intermediate calculations. Round your...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT