Consider the following information which relates to a given company: Item Earnings Per Share Price Per Share (Common Stock) Book Value (Common Stock Equity) Total Common Stock Outstanding Dividend Per Share 2019 Value $6.88 $37.25 $63.31 2.5 $5.75 Million Million Analysts expect that the company could maintain a constant annual growth rate in dividends per share of 6.34% in the future, or possibly 8.39% for the next 2 years and 6.89% thereafter. In addition, it is expected that the risk of the firm, as measured by the risk premium on its stock, to increase immediately from 8.26% to 12.91%. Currently, the risk-free rate is 5.1%. Required: Assuming a constant annual 6.34% growth rate in future dividends, find the value per share of the firm's stock. The required return is 16.54%. (ROUND YOUR ANSWER TO 2 DECIMAL PLACES. FOR EXAMPLE: 17.23) Consider the following information which relates to a given company: Item Earnings Per Share Price Per Share (Common Stock) Book Value (Common Stock Equity) Total Common Stock Outstanding Dividend Per Share 2019 Value $6.87 $37.44 $62.96 2.4 $4.06 Million Million Analysts expect that the company could maintain a constant annual growth rate in dividends per share of 6.52% in the future, or possibly 8.91% for the next 2 years and 6.64% thereafter. In addition, it is expected that the risk of the firm, as measured by the risk premium on its stock, to increase immediately from 8.5% to 12.54%. Currently, the risk-free rate is 5.35%. Required: Assuming a constant annual 8.91% growth rate in dividends per share over the next two years and 6.64% thereafter, find the value per share of the firm's stock. The required return is 16.73%. $ (ROUND YOUR ANSWER TO 2 DECIMAL PLACES. FOR EXAMPLE: 17.23) Consider the following information which relates to dividends per share (DPS) for a given company: DPS $9.5 $1.70 Year 2019 2018 2017 2016 2015 $1.55 $1.40 $1.6 Today, we are in 2020. Management is in the process of deciding whether to expand or not to expand the firm's branches. Below, is a set of inputs associated with each scenario: Scenario #1 - Do Not Expand: Dividend by the end of 2020 is expected to grow at the historical annual growth rate for the period 2015-2019, which is currently undetermined. This period adds up to four years based upon starting at time zero. Once determined, this rate is expected to continue in the future. Under this scenario, the required return on common stock is 1.1%. Scenario #2 - Expand: Dividend in 2021 is expected to be $3.4 per share, which will grow at an annual rate of 4.2% for two years (2022 and 2023), and then, the divided would grow at the same unknown rate in the first scenario from 2024 thereafter. Under this scenario, the required return on common stock is 7.1%. Required: What is the dollar difference in the present value per share of common stock between both scenarios? $ (ROUND YOUR ANSWER TO 2 DECIMAL PLACES. FOR EXAMPLE: 17.23) The following yield data relates to a number of high-quality corporate bonds recorded at each of the three points in time: Maturity (years) 1 5 years ago 9.10% Yield to Maturity 2 years ago 14.60% 12.80% 12.20% 10.90% 3 9.20% Today 9.30% 9.80% 10.90% 12.60% 5 9.34% 10 9.51% Required: Consider the data from 5 years ago. According to the expectations hypothesis, what approximate return did investors expect a 5-year bond to pay as of today? Hint: think of expectations as a percentage difference in returns between the present and the future. % (ROUND YOUR ANSWER TO 2 DECIMAL PLACES. FOR EXAMPLE: 17.23) Afirm's capital structure consists of 30% long-term debt. At present, the company can raise debt by selling 18-year bonds with a 11.78% annual coupon interest rate. The firm is in a 39.65% income tax bracket. Its bonds generally require an average discount of $43 per bond and flotation costs of $30 per bond when being sold. Required: Calculate the firm's current after-tax cost of long-term debt. % (ROUND YOUR ANSWER TO 2 DECIMAL PLACES. FOR EXAMPLE: 17.23)
