Gapenski's Healthcare Finance: An Introduction to Accounting and Financial Managemen

Chapter $12-$Equity Financing and Securities Markets

$9/8/21$

Input number

Mini$-$Case

Formula or cell referes

Darnell Robinson is currently a fellow in the senior management office of Humana Inc. He has been asked to help management prepare for an upcoming meeting of the Board when the projected financial performance of the corporation will be presented, including the estimated return to shareholders over the next three years. Darnell has assembled some preliminary information from Yahoo Finance. On January $12021,$ Humana stock sold for $$410\mathrm{.}27($P$0),$ it paid a dividend of $$2\mathrm{.}50(D0),$ and its beta $()$ was $0\mathrm{.}84.$ Included in the Yahoo data was an expected growth rate $[$E$($g$)]$ for Humana of $4\mathrm{.}5$ percent that was an average of $21$ financial analysts' estimates. Darnell also decided to use the $10-$year Treasury rate of $0\mathrm{.}93\%$ for the risk free rate $(RF)$ and the $20-$year average annual return of the S&P $500$ of $5\mathrm{.}9$ percent as an estimate for the required rate of return on the market $[$R$($RM$)].$ With this information in hand, Darnells sets about finding answers to the following questions:

$\backslash$table$[[$a$.,$What is the required rate of return $R(Ri)$ on Humana stock?$],[$b$.,$What is the expected dollar dividend for the next three years $[$E$($D$1),$ E$($D$2),$ E$($D$3)]?],[$c$.,$What is the current value of the stock $E(P0)$ and the expected stock price at the$],[,$end of each of the next three years $[$E$($P$1),$ E$($P$2),$ E$($P$3)]?,,],[$d$.,$What is the expected dividend yield and capital gains yield for each of the next$],[$three years?,,,,,$],[$e$.,$What is the expected total return for each of the next three years?,$],[$f$.,$How does the expected total return compare with the required rate of return on$],[$the stock? Does this make sense? Explain your answer.,,$],[$g$.,$On January $12021,$ what do you think was the recommendation of the $21$ financial$],[$analysts for Humana stock?,,,,$],[$Strong$,$Buy,Hold,Under$-,$Sell,$],[$buy$,,,$perform,,$],[$h$.,$Why would some inves,ay H$,rt,$lent yield,,$]]$