Chapter 7 Review

Chapter 7 Review - 8.75 D 0 = $3.75 g = 5.5 k cs = 8.75...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
* Chapter 7 Review  Common Stock:  Gordon Growth Model Constant Growth Model: Assumes common stock dividends will grow at a  constant rate into the future. D 1 :  the dividend at the end of period 1.  [D 1 D 0 *(1+g)] k cs :  the required return on the common stock. g:  the constant, annual dividend growth rate * Remember:  Sustainable Growth = g* = ROE x (1-b) Falcon stock recently paid a  $3.75 dividend The dividend is expected to  grow at 5.5%  per year indefinitely.    What would we be willing to pay if our  required return  on Falcon stock is  8.75% ? Falcon stock recently paid a  $3.75 dividend .  The dividend is  expected to  grow at 5.5%  per year indefinitely.    What would we be willing to pay if our  required return  on Falcon  stock is 
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 8.75% ? D 0 = $3.75 g = 5.5% k cs = 8.75% Value = PV(Stage 1) + PV(Stage 2) Stage 1 : PV of super-normal dividends (“estimation period”). Process: calculate and find the PV of each super-normal dividend. Stage 2: PV of normal dividends (a growing perpetuity starting after the super-normal period). Process: Use GGM Formula: Due to a research development, earnings and dividends in Carlisle Corp are expected to grow at a rate of 21% for the next 4 years . After this period, the firm is expected to grow at the industry average rate of 4.25% forever. The firm recently paid a dividend of $1.45 and the required return is 10%....
View Full Document

{[ snackBarMessage ]}

Page1 / 2

Chapter 7 Review - 8.75 D 0 = $3.75 g = 5.5 k cs = 8.75...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online