Deployment Specialists pays a current (annual) dividend of $1.00 and is expected to grow at 20% for two years and then at 4% thereafter. If the required return for Deployment Specialists is 8.5%, the current value of Deployment Specialists is closest to:
A)
$33.28.
B)
$25.39.
C)
$30.60.
First estimate the amount of each of the next two dividends and the terminal value. The current value is the sum of the present value of these cash flows, discounted at 8.5%.
An analyst has compiled the following financial data for ABC, Inc.
ABC, Inc. Valuation Scenarios
Item
Scenario 1
Scenario 2
Scenario 3
Scenario 4
Year 0 Dividends per Share
$1.50
$1.50
$1.50
$1.50
Long-term Treasury Bond Rate
4.0%
4.0%
5.0%
5.0%
Expected Return on the S&P 500
12.0%
12.0%
12.0%
12.0%
Beta
1.4
1.4
1.4
1.4
g (growth rate in dividends)
0.0%
3.0%
Years 1-3, g=12.0%
After Year 3, g=3.0%
Year 1, g=20%
Year 2, g=18%
Year 3, g=16%
Year 4, g=9%
Year 5, g=8%
Year 6, g=7%
After Year 6, g=4%
What is the value of ABC, Inc.'s stock price using the assumptions contained in Scenario 4?
A)
$26.66.
B)
$22.22.
C)
$18.52.
The required rate of return is (r) = 0.05 + 1.4(0.12 − 0.05) = 0.148
The future dividends are predicted as the following:
Year
Dividend
0
1.50
1
1.50 × 1.2 = 1.80
2
1.80 × 1.18 =2.124
3
2.124 × 1.16 = 2.464
4
2.464 × 1.09 = 2.686
5
2.686 × 1.08 = 2.900
6
2.901 × 1.07 = 3.103
7
3.103 × 1.04 = 3.227
Now discount the dividend stream to get the value per share. Use the Gordon growth model to discount the constant growth after period 6. Value per share = (1.8 / 1.148) + (2.124 / 1.1482) + (2.464 / 1.1483) + (2.686 / 1.1484) + (2.900 / 1.1485) + (3.103 / 1.1486) + (3.227 / 1.1486(0.148 − 0.04)) = 22.22.
If a stock expects to pay dividends of $2.30 per share next year, what is the value of the stock if the required rate of return is 12% and the expected growth rate in dividends is 4%?
A)
$28.75.
B)
$29.90.
C)
$19.17.
Using the Gordon growth model, the value per share = DPS1 / (r − g) = 2.30 / (0.12 − 0.04) = $28.75.
An investor projects that a firm will pay a dividend of $1.00 next year and $1.20 the following year. At the end of the second year, the expected price of the shares is $22.00. If the required return is 14%, what is the current value of the firm’s shares?
An investor projects that a firm will pay a dividend of $1.25 next year, $1.35 the second year, and $1.45 the third year. At the end of the third year, she expects the asset to be priced at $36.50. If the required return is 12%, what is the current value of the shares?
A)
$32.78.
B)
$29.21.
C)
$31.16.
The current value of the shares is $29.21: V0 = ($1.25 / 1.12) + ($1.35 / (1.12)2) + ($1.45 / (1.12)3) + ($36.50 / (1 + 0.12)3) = $29.21
JAD just paid a dividend of $0.80. Analysts expect dividends to grow at 25% in the next two years, 15% in years three and four, and 8% for year five and after. The market required rate of return is 10%, and Treasury bills are yielding 4%. JAD has a beta of 1.4. The estimated current price of JAD is closest to:
A)
$45.91.
B)
$25.42.
C)
$29.34.
JAD’s stock price today can be calculated using the three-stage model. Start by finding the value of the dividends for the next four years with the two different dividend growth rates.
(Alternatively, you could use your financial calculators to solve for the future value to find D1, D2, D3, and D4.)
Next find the value of the stock at the beginning of the constant growth period using the constant dividend discount model:
The easiest way to proceed is to use the NPV function in the financial calculator.
CF0 = 0; CF1 = 1.00; CF2 = 1.25; CF3 = 1.4375; CF4 = 1.6531 + 40.57 = 42.22
I = 12.4; NPV = 29.34
The value of the firm today is $29.34 per share.
IAM, Inc. has a current stock price of $40.00 and expects to pay a dividend in one year of $1.80. The dividend is expected to grow at a constant rate of 6% annually. IAM has a beta of 0.95, the market is expected to return 11%, and the risk-free rate of interest is 4%. The expected stock price two years from today is closest to:
A firm's dividend per share in the most recent year is $4 and is expected to grow at 6% per year forever. If its shareholders require a return of 14%, the value of the firm's stock (per share) using the single-stage dividend discount model (DDM) is:
A)
$50.00.
B)
$53.00.
C)
$28.57.
The value of the firm's stock is: $4 × [1.06 / (0.14 − 0.06)] = $53.00
Jand, Inc., currently pays a dividend of $1.22, which is expected to grow at 5%. If the current value of Jand’s shares based on the Gordon model is $32.03, what is the required rate of return?
A)
8%.
B)
9%.
C)
7%.
The required return is 9%: r = [$1.22(1 + 0.05) / $32.03] + 0.05 = 0.09 or 9%.
A firm currently pays a dividend of $1.77, which is expected to grow at a rate of 4%. If the required return is 10%, what is the current value of the shares using the Gordon growth model?
发表于 2012-3-31 09:15
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