Look one more time at Table 4.1, which applies the DCF stock valuation formula to Fledgling Electronics.
Question:
Look one more time at Table 4.1, which applies the DCF stock valuation formula to Fledgling Electronics. The CEO, having just learned that stock value is the present value of future dividends, proposes that Fledgling pay a bumper dividend of $15 a share in period 1. The extra cash would have to be raised by an issue of new shares. Recalculate Table 4.1 assuming that profits and payout ratios in all subsequent years are unchanged. You should find that the total present value of dividends per existing share is unchanged at $100.Why?
Transcribed Image Text:
Expected Future Vakues Present Values Horizon Cumulative Dividends Future Price Dividend (DIV,) Price (P) Total Period (H) 100 110 121 133.10 146.41 100 100 100 100 100 5.00 5.50 6.05 6.66 4.35 8.51 12.48 16.29 95.65 91.49 87.52 83.71 259.37 672.75 11,739.09 1,378,061.23 10 20 50 100 11.79 30.58 35.89 58.89 64.11 100 100 100 100 41.11 89.17 533.59 10.83 62,639.15 98.83 1.17 88888 8888 01234
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Related Book For
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
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