Boehm Incorpo ordaind is expected to pay a $1.50 per parcel divid expiry at the end of this
year (i.e., D1 = $1.50). The dividend is expected to grow at a constant tread of 7%
a year. The ask rate of return on the livestock, rs, is 15%. What is the value per
dish out of Boehms stock?
Answer
Price = $1.50 / (0.15 - 0.07) = $18.75
Im doing this chapter right now, and this problem was in this weeks homework. Heres how I did it: Using the formula in our book, I sign on 1.50 multiply it by 1 + the 7% growth rate and nark 1.5 (1.07) = 1.605 Now, I need to go to part twain of the formula. I take what I just got and divide by the essential rate of return minus the growth rate:
(1.50)(1.07) /(.15 - .07) = 1.605 / .08 = 20.0625 or $20.63
(1.50 X 1) + the 7% growth rate and get 1.5 (1.07) = 1.605
(1.50)(1.07) /(.15 - .07) = 1.605 / .08 = 20.0625 or $20.63
(74)Preferred Stock Valuation
Nicks Enchiladas Incorporated has preferent stock great that pays a dividend
of $5 at the end of each year. The preferred sells for $50 a office. What is the stocks
required rate of return?
Answer
$5/$50 = 10%
(75) Nonconstant Growth Valuation
A company lively pays a dividend of $2 per share (D0 = $2).
It is estimated that
the companys dividend will grow at a rate of 20% per year for the next 2 years, then
at a constant rate of 7% thereafter. The companys stock has a beta of 1.2, the take chancesfree
rate is 7.5%, and the market risk premium is 4%. What is your estimate of the
stocks current price?
Problems (p. 371)
(92)
After-Tax Cost of Debt
LL Incorporateds currently outstanding 11% coupon bonds have a yield to maturity
of 8%. LL believes it could issue new bonds at par that would provide a similar yield
to maturity. If its marginal tax rate is 35%, what is LLs after-tax cost of debt?
(94) Cost of Preferred Stock with Flotation Costs
Burnwood technical school plans to issue some $60 par preferred stock with a 6% dividend. A...If you want to get a expert essay, order it on our website: Orderessay
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