mgmt 109 hw # 4

mgmt 109 hw # 4 - P=116.667 1. Our company has to decide...

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James Weinstock Mgmt 109 November 7, 2011 Hw # 4 8.2) The next dividend payment will be 2.10$ per share. The dividends are anticipated to maintain a 5 % growth rate forever. If the stock sells for 48$ per share, what is required return? 48= 2.1/r-5% R= 9.3 % 8.4) Metroplex will pay 3.04$ per share dividend next year. The company pledges to increase its dividend by 3.8 % per year indefinitely. If you require an 11 % return on your investment, how much will you pay for the companies stock today. Po= D1/(r-g) .11r=3.0818 stock = 28.0164$ ?? 8.7) Corp pays a constant 9.75 dividend. It will maintain for the next 11 years and will then cease paying dividends forever. If the required return on this stock is 10 % what is current share price? Po= div1/(1+r) =63.42$ 8.11) No dividends. The company will pay a 10 $ per share dividend in 10 years and will increase the dividend by 5 % per year thereafter. If the require return on this stock is 14% what is current share price? P10=d10 (1+g)/ (r-g) P=10(1+.05)/(.14-.05)
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Unformatted text preview: P=116.667 1. Our company has to decide between (1) pay a $5.00 dividend next year, which represents 100% of its earnings This will provide investors with a 12% expected return. D/r 5/.12%= 41.667 (2) plow back 40% of the earnings at the firm’s current return on equity of 10%. What is the value of the stock before and after the plowback decision? Note, this is essentially the same problem as the example shown in class, except that the return on equity is 10%, instead of 20% in class. Comparing the results of this problem with the example shown in class, how does your answer change? Can we say that reinvesting always create value for the firm? yes P= (div 1)/(r-g) div1= (eps) *( dividnet pay out ration) div1=(5) * (. .60 )=3 G= b * roe = 40 % * 10 % =.04 P=3/(12% -4%) =37.5 $ More return on equity = more money 2. Try to show the following: Under the Gordon’s Growth Model, the capital gain yield equals the growth rate of the dividends. Not sure?? P=d1/(k-g)...
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This note was uploaded on 02/13/2012 for the course MGMT 109 taught by Professor Zheng during the Spring '11 term at UC Irvine.

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mgmt 109 hw # 4 - P=116.667 1. Our company has to decide...

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