Question
1) Constant Growth Rate, gL A stock is trading at $90 per share. The stock is expected to have a year-end dividend of $6 per
1) Constant Growth Rate, gL
A stock is trading at $90 per share. The stock is expected to have a year-end dividend of $6 per share (D1 = $6), and it is expected to grow at some constant rate gL throughout time. The stock's required rate of return is 16% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of gL? Round the answer to three decimal places.
%
2) Horizon Value of Free Cash Flows
Current and projected free cash flows for Radell Global Operations are shown below.
Actual 2016 | 2017 | Projected 2018 | 2019 | |
Free cash flow | $609.72 | $670.40 | $710.45 | $753.08 |
(millions of dollars) |
Growth is expected to be constant after 2018, and the weighted average cost of capital is 11.5%. What is the horizon (continuing) value at 2019 if growth from 2018 remains constant? Round your answer to the nearest dollar. Round intermediate calculations to two decimal places. $
3) Nonconstant Growth Valuation
A company currently pays a dividend of $3.25 per share (D0 = $3.25). It is estimated that the company's dividend will grow at a rate of 17% per year for the next 2 years, and then at a constant rate of 8% thereafter. The company's stock has a beta of 1.85, the risk-free rate is 6.5%, and the market risk premium is 5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.
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