Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as
The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows: Po = D (rs - g) Which of the following statements is true? Increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and that impedes growth. Increasing dividends will always decrease the stock price, because the firm is depleting internal funding resources. Increasing dividends will always increase the stock price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $1. at the end of the year. Its dividend is expected to grow at a constant rate of 8.50% per year. If Walter's stock currently trades for $14.00 per share, what is the expected rate of return? O 9.62% 15.19% 8.61% O 20.29% Which of the following statements will always hold true? The constant growth valuation formula is not appropriate to use for zero growth stocks. It will never be appropriate for a rapidly growing startup company that pays no dividends at present--but is expected to pay dividends at some point in the future-to use the constant growth valuation formula. The constant growth valuation formula is not appropriate to use unless the company's growth rate is expected Robert Gillman, an equity research analyst at Gillman Advisors, believes in efficient markets. He has been following the mining industry for the past 10 years and needs to determine the constant-growth rate that he should use while valuing Pan Asia Mining Co. Robert has the following information available: Pan Asia Mining Co.'s stock (Ticker: PAMC) is trading at $25.00. . The company has forecasted net income and book value of equity for the coming year to be $1,578,000 and $12,350,000, respectively. The company has also been paying dividends for the past 8 years and has maintained a dividend payout ratio of 50.00%. Based on this information, Robert's forecast of PAMC's growth rate in earnings and dividends should be: 38.34% 9.58% 31.95% 6.39% Which of the following statements accurately describes the relationship between earnings and dividends when all other factors are held constant? O Paying a higher percentage of earnings as dividends will result in a higher growth rate. O Dividend growth and earnings growth are unrelated. Long-run earnings growth occurs primarily because firms retain earnings and reinvest them in the business
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started