7-9 work - P 7-9 Common stock value—Constant growth Use...

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Unformatted text preview: P 7-9 Common stock value—Constant growth Use the constant-growth model (Gordon model) to find the value of each firm shown in the following table. Firm Dividend expected next year Dividend growth rate Required return Firm Dividend expected next year Dividend growth rate Required Return A $1.20 8% 13% B $4.00 5 15 C 0.65 10 14 D 6.00 8 9 E 2.25 8 20 P0 = D1 rs - g (Pg: 513 in book) P0= value of common stock D1= per-share dividend expected at the end of year 1 rs= required return on common stock g= constant rate of growth in dividends * I hope this was ok to do I showed the written work for one example and just used the firmulas for the rest as proof of my work For Firm A. d1= 1.20 rs=.13 P0= 1.2 .13 - .08 Table: Firm g= .08 P0= 1.2 0.05 P0= 24 Dividend expected next year $1.20 $4.00 $0.65 $6.00 $2.25 Dividend growth rate 8% 5% 10% 8% 8% Required Return 13% 15% 14% 9% 20% A B C D E Value of each firm $24.00 $40.00 $16.25 $600.00 $18.75 ...
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This note was uploaded on 04/22/2011 for the course FIN & ACC 504 & 502 taught by Professor Harper&tai during the Spring '11 term at Grand Canyon.

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