Portman Industries just paid a dividend of $1.92 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.

calculate

Dividends one year from now (D1)
Horizon value (P1)P1
Intrinsic value of Portmans stock

he risk-free rate (rRFrRF) is 4.00%, the market risk premium (RPMRPM) is 4.80%, and Portmans beta is 2.00.

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

What is the expected dividend yield for Portmans stock today?

8.32%

11.45%

10.08%

10.40%

Now lets apply the results of your calculations to the following situation:

Portman has 1,000,000 shares outstanding, and Judy Davis, an investor, holds 15,000 shares at the current price (computed above). Suppose Portman is considering issuing 125,000 new shares at a price of $18.20 per share. If the new shares are sold to outside investors, by how much will Judys investment in Portman Industries be diluted on a per-share basis?

$0.31 per share

$0.76 per share

$0.44 per share

$0.36 per share

Thus, Judys investment will be diluted, and Judy will experience a total (loss or gian) of .