1112 Words5 Pages

FIN515 Week 4 Homework 9-1 Future Value of a Company Assume Evco, Inc., has a current price of $50 and will pay a $2 dividend in one year, and its equity cost of capital is 15%. What price must you expect it to sell for right after paying the dividend in one year in order to justify its current price? Answer: Find price of stock in 1 year. Current Price = $50, Dividend = $2, Cost of Equity Capital = 15% X = Price the stock will sell right after paying the dividend: 50 = (2+ X) /(1+0.15) X = 55.50 Therefore, price the stock will sell right after paying the one year dividend is $55.5 9-4 Dividend Yield and Cost of Equity Capital Krell Industries has a share price of $22 today. If Krell is expected to pay a dividend of $0.88 this year, and its stock price is expected to grow to $23.54 at the end of the year, what is Krell’s dividend yield and equity cost of capital? Answer: Dividend Yield = Dividend / Share price = 0.88/22 = 4% Capital Gain Rate = (End of year stock price – Share price today) / Share price today = (23.54 – 22) / 22 = 7% Total expected return (Equity cost of capital) = 4% + 7% = 11% 9-5 No Growth Company NoGrowth Corporation currently pays a dividend of $2 per year, and it will continue to pay this dividend forever. What is the price per share if its equity cost of capital is 15% per year? Answer: Assume: dividends are paid at the end of the year Stock pays a total of $2.00 in dividends per year. Valuing this dividend as a perpetuity: P = $2.00 / 0.15 = $13.33 9-6 Value of Operations of Constant Growth Summit Systems will pay a dividend of $1.50 this year. If you expect Summit’s dividend to grow by 6% per year, what is its price per share if its equity cost of capital is 11%? Answer: Price per share = 1.50 / (11% – 6%) = $30

Related

## Accounting 404 Essay

318 Words | 2 PagesBoehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1 = $1.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 15%. What is the value per share of Boehm’s stock? Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year.

## Fin515 Essay

504 Words | 3 PagesIf the required return on this preferred stock is 6.5%, at what price should the preferred stock sell? =Preference Dividend/ Required Return= $7.5/ 6.5%= $ 115.38 13. The Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company's current stock price, P0?

## Finance Problems Essay

1765 Words | 8 Pagesc. Internal common equity where the current market price of the common stock is $43.50. The expected dividend this coming year should be $3.25, increasing thereafter at a 7% annual growth rate. The corporation’s tax rate is 34%. d. A preferred stock paying a 10% dividend on a $125 par value. If a new issue is offered, flotation costs will be 12% of the current price of $150.

## Str Capstone 581 Final Examination Part 2

1646 Words | 7 Pagesmost common form of organization reduced legal liability for investors lower taxes harder to transfer ownership 4. Serox stock was selling for $20 two years ago. The stock sold for $25 one year ago, and it is currently selling for $28. Serox pays a $1.10 dividend per year. What was the rate of return for owning Serox in the most recent year?

## Bless Me Ultima

660 Words | 3 PagesPMT = (.1085/2)*1000=54.25 N = 60 R = 0.09/2=0.045 (or 4.5 for calculator purposes) FV = 1000 PV =? Answer: 1,190.90 b.What is the value of this bond 10 years after it was issued? PMT = (.1085/2)*1000=54.25 N = 40 R = 0.09/2=0.045 (or 4.5 for calculator purposes) FV = 1000 PV =? Answer: 1170.20 The price will decrease as approaching maturity since at maturity (just before expiration) it will be worth the par ($1,000) since this is a premium bond. 2.Suppose your company needs to raise $30 million and you want to issue 30-year bonds for this purpose.

## Case 78 Essay

1211 Words | 5 PagesThe dividends and growth rate will remain constant over time. No, In the real world earnings will differ from year to year 2. The Wall Street Journal (WSJ) lists the current price of James River common stock at $27.00. a. Based on this information, the ValueLine 1995 expected dividend, and the annual rate of dividend change for the growth estimate, what is the company’s return on common stock using the constant growth model?

## Fin 300 Questions

1860 Words | 8 Pagesa. $1,832.61 b. $1,829.08 c. $1,840.45 d. Other 6. An annuity will pay eight annual payments of $100, with the first payment to be received one year from now. If the interest rate is 12% per year, what is the present value of this annuity?

## Neverfail Computing Essay

1210 Words | 5 PagesWith this new development, if we assume that the previous 4,796,000 shares of common stock that were originally issued in March of 1993 are now also worth $1 per share, this gives a total of $4,796,000. The total valuation of the company will then be $800,000 + $4,796,000 = $5,596,000. This is the value that we believe to represent the valuation of Neverfail as of November 1994. After round 1 of VC investment: Due to the deal with the Pacific Ridge, Neverfail share prices were going for $1.50 per share The Company was valued at $9 million as of December 1994 according to the case study. Initial value of Pacific ridge investment (December 1995) is: 666,667 * $1.50 + 133,333 * $0.3 = $1,040,000.4 (initial investment, exhibit 7).

## Financial Markets Essay

788 Words | 4 PagesFinancial Markets (N13302) Mock Paper (2010/2011) Question 1 (a) BSC Industries has just paid its annual dividend of $10 per share. The dividend is expected to grow at a constant rate of 5% indefinitely. The beta of BSC industries stock is 1.3, the risk-free rate is 2%, and the market risk premium is 7%. (1) What is the intrinsic value of the stock? (2) What would be your estimate of intrinsic value if you believed that the stock was riskier, with a beta of 1.7?

## Vodafone Essay

560 Words | 3 PagesBased on this estimate, should Vodafone shareholders support the deal? What fraction of the synergies is appropriated by Vodafone shareholders and what fraction by Mannesmann shareholders? What is the present value of the expected synergies as shown in Exhibit 10? (Assume that the synergies related to revenues and costs grow at 4% annually past 2006, that savings from capital expenditures do not extend beyond 2006, and that the merger will not affect the firm’s level of working capital.) Use the average exchange rate of EUR/GBP=1.5789, and the Goldman Sachs WACC.

### Accounting 404 Essay

318 Words | 2 Pages### Fin515 Essay

504 Words | 3 Pages### Finance Problems Essay

1765 Words | 8 Pages### Str Capstone 581 Final Examination Part 2

1646 Words | 7 Pages### Bless Me Ultima

660 Words | 3 Pages### Case 78 Essay

1211 Words | 5 Pages### Fin 300 Questions

1860 Words | 8 Pages### Neverfail Computing Essay

1210 Words | 5 Pages### Financial Markets Essay

788 Words | 4 Pages### Vodafone Essay

560 Words | 3 Pages