Assume that dividends in the next three years (starting from year 2017) will grow at a rate of 13% annually. Further, it is assumed that dividends will grow at a rate of 11% for the next four years (year 4 to 7). Thereafter it is assumed that the company will grow at a constant growth rate of 7% per annum. The last dividend paid (for 2016) is $1.52. Assume a required rate of return of 12%. Clearly show the following: Present Value of First Stage (4 marks) Present Value of Second Stage (5 marks) Present Value with constant growth rate (5 marks) Stock Intrinsic Value (1 marks)
Added by Alan A.
Step 1
52 x (1 + 13%) = $1.72 Dividend for 2018 = $1.72 x (1 + 13%) = $1.95 Dividend for 2019 = $1.95 x (1 + 13%) = $2.21 Show more…
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Now assume that Temp Force's dividend is expected to experience nonconstant growth of 30% from year 0 to Year 1, 25% from Year 1 to Year 2, and 15% from Year 2 to Year 3. After Year 3, dividends will grow at a constant rate of 6%. What is the stocks intrinsic value under these conditions? What are the expected dividend yield and capital gains yield during the first year? What are the expected dividend yield and capital gains yield during the fourth year (from Year 3 to Year 4)? Dividends D0 2 $ 2.00 D1 2*(1.30) $ 2.60 D2 2.6*(1.25) $ 3.25 D3 3.25*(1.15) $ 3.74 Rs 13% g 6% Expected Dividend Yield 7% Capital Gain Yield 6% Total Return 13% Expected Rate of Return 13%
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Halliford Corporation expects to have earnings this coming year of $3 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 50% of its earnings. It will then retain 20% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 25% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 10%, what price would you estimate for Halliford stock? What are the earnings and dividends over the first three years? At what rate will the earnings and dividends grow in year 4 and 5? What are the dividends at the end of year 4 and 5? What price would you estimate for Halliford stock?
Akash M.
Find the present value of a dividend-paying stock using an annual effective rate of interest of 5%. Assume the stock pays annual dividends in perpetuity. a) Assume annual dividends of $5 with the next dividend due in 1 year. b) Assume the first dividend is $5 and is due in 1 year, and that each subsequent dividend is 2% larger.
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