Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected

image text in transcribed
image text in transcribed
image text in transcribed
As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. Consider the case of Portman Industries: Portman Industries just palda 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, Portman's dividend is expected to grow at a constant rate of 3.20% per year. (Note: Do not round your intermediate calculations.) Term Value Dividends one year from now (D) Horizon valor (Pi) tebis value of Portman's stock (Note: Rounded to four decimal places) (Note: Rounded to two decimal places) (Note: Rounded to two derimalan Intrinsic value of Portman's stock The risk free rate (hu) is 4.00, the market risk premium (RPM) is 4.80%, and Portman's beta is 1.80. Assuming that the market is in equilibrium, use the information Just given to complete the table. what is the expected dividend yield for Portman's stock today? 09.445 09.15% 07:55 10.30% How let's apely the results of your calculations to the following situation: Portman has 600,000 shares outstanding, and Judy Davis, an investor, holds 9,000 shares at the current price (computed above). Suppose Portman is considering issuing 75,000 new shares at a price of 532.59 per share. If the new shares are sold to outside investors, by how much will Judy's Investment in Portman Industries be diluted on a per-share basis? O $0.54 per share O $0.64 per share O $0.79 per share O $1.34 per share Thus, Judy's Investment will be diluted, and Judy will experience a total

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

Finance

Authors: Angelico Groppelli, Ehsan Nikbakht

7th Edition

1438010362, 9781438010366

More Books

Students also viewed these Finance questions