Q3) (Show all steps) If a firm just paid a dividend of $8.00 and the firm's...
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Q3) (Show all steps) If a firm just paid a dividend of $8.00 and the firm's capitalization rate is 12% (r = 12%). < a) What is the present stock price with zero growth rate, with 8% indefinitely? What is my dividend yield?+ b) If the firm expected to grow at 15% for the next 3 years and after that the firm is expected to grow at 7% indefinitely? 1. What is the present stock price?+ II. If I bought the stock today and decided to sell it in three years what is my annual rate of return on this stock? What is my capital gain yield? Explain why me rate of return is not the same as capital gain? III. What is the dividend yield (DY) in the first four year of the stock? Why DY is not equal to the rate of return in part II. IV. What is P8? If my required rate of return is 10% should I buy the stock today and sell it in 8 years. Clearly Explain. V. If I bought the stock at year O (PO) and I was able to sell the stock in year 6 (P6) for $660, what will be my annul return on investment (HPY) if you cannot calculate it at least set it up? Explain what is my annul return on investment made from. < d) Given part "b" with the 8% growth, assume that the CEO of the firm is thinking to payout only $3 in dividend and plowback the rest ($5) in a new project. The cash flows from this new project are expected to grow at constant rate of 10% indefinitely and the right discount rate for this project is 14%, what is the present stock price? f) Would the project create value or destroy value for the company, explain? How much value did it create per stock? Q3) (Show all steps) If a firm just paid a dividend of $8.00 and the firm's capitalization rate is 12% (r = 12%). < a) What is the present stock price with zero growth rate, with 8% indefinitely? What is my dividend yield?+ b) If the firm expected to grow at 15% for the next 3 years and after that the firm is expected to grow at 7% indefinitely? 1. What is the present stock price?+ II. If I bought the stock today and decided to sell it in three years what is my annual rate of return on this stock? What is my capital gain yield? Explain why me rate of return is not the same as capital gain? III. What is the dividend yield (DY) in the first four year of the stock? Why DY is not equal to the rate of return in part II. IV. What is P8? If my required rate of return is 10% should I buy the stock today and sell it in 8 years. Clearly Explain. V. If I bought the stock at year O (PO) and I was able to sell the stock in year 6 (P6) for $660, what will be my annul return on investment (HPY) if you cannot calculate it at least set it up? Explain what is my annul return on investment made from. < d) Given part "b" with the 8% growth, assume that the CEO of the firm is thinking to payout only $3 in dividend and plowback the rest ($5) in a new project. The cash flows from this new project are expected to grow at constant rate of 10% indefinitely and the right discount rate for this project is 14%, what is the present stock price? f) Would the project create value or destroy value for the company, explain? How much value did it create per stock?
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Answer rating: 100% (QA)
a Present stock price with zero growth rate g 0 The present stock price P0 can be calculated using the dividend discount model DDM P0 D r P0 8 012 P0 6667 Present stock price with 8 growth rate indefi... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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