Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

7. Nonconstant growth stock Portman Industries just paid a dividend of $3.12 per share. The company expects the coming year to be very profitable, and

7. Nonconstant growth stock

Portman Industries just paid a dividend of $3.12 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 16.00% over the next year. After the next year, though, Portmans dividend is expected to grow at a constant rate of 3.20% per year.

The risk-free rate (rRFRF) is 4.00%, the market risk premium (RPMM) is 4.80%, and Portmans beta is 1.80.

7.1) Assuming that the market is in equilibrium, use the information just given to complete the table.

Term

Value

Dividends one year from now (D11)
Horizon value (P11)
Intrinsic value of Portmans stock

7.2) Portman has 600,000 shares outstanding, and Judy Davis, an investor, holds 9,000 shares at the current price as just found. Suppose Portman is considering issuing 75,000 new shares at a price of $32.59 per share. If the new shares are sold to outside investors, by how much will Judys investment in Portman be diluted on a per-share basis?

a) $1.34 per share

b) $0.64 per share

c) $0.79 per share

d) $0.54 per share

7.3) Thus, Judys investment will be diluted, and Judy will experience a total (Profit/loss) of $_____

Please provide step by step tutorial. Thank you:) .

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Derivative Products And Pricing The Das Swaps And Financial Derivatives Library

Authors: Satyajit Das

1st Edition

0470821647, 9780470821640

More Books

Students also viewed these Finance questions

Question

What elements of multimedia-based instruction facilitate learning?

Answered: 1 week ago

Question

Convert from Octal to Binary: 4 7 5 8 =

Answered: 1 week ago

Question

Define offboarding. Why is it important?

Answered: 1 week ago