FI515

Week 4 Groundwork

P7-2

Section 7

Constant Growth Valuation

7–2)

Gross Expected

Development Rate

Necessary ROR inventory (rs)

1 ) 50/(. 07-. 15)=

Share price

Cost = Dividend / (Required Return -- Growth Rate)

P7-4

$1. 50

seven percent

15%

Constant Growth Valuation

Boehm Designed is expected to pay a $1. 50 per discuss

dividend towards the end of this 12 months (i. electronic., D1 = $1. 50). The

dividend is likely to grow at a constant rate of 7% a

12 months. The required price of come back on the share, rs, is 15%.

Precisely what is the value per share of Boehm's share?

$18. seventy five

Preferred Share Valuation

(7–4)

Dividend

Cost of Stock

Required Return

P7-5

$5. 00

Actually zero Growth Inventory Price = Dividend / Required Go back

$50

Nick's Enchiladas Incorporated has favored stock

exceptional that will pay a gross of $5 at the end of each and every

year. The preferred sells for $50 a share. Precisely what is the

stock's required rate of come back?

10% Essential Return sama dengan Dividend / Price

(7–5)

Nonconstant Development Valuation

Nonconstant Growth Valuation

Step 1 : Estimate the required charge of return using CAPM

A company at the moment pays a dividend of $2 per share (D0 =

$2). It is estimated that the company's dividend will grow at a rate of 20% per year for 2 years, in that case at a

constant charge of seven percent thereafter. You�re able to send stock contains a

beta of 1. 2, the risk-free price is several. 5%, as well as the market risk premium is usually 4%. What is your estimate in the stock's

current price?

Needed Rate of Return sama dengan rs sama dengan Risk Free Price + (Market Risk Premium)*Beta beta

1 . 2

Free of risk rate

several. 50%

Marketplace Risk High grade

4. 00%

Required ROR

Preferred Stock Valuation

12. 3%

Step 2: Calculalte the expected dividends by using the foreseeable future value function and growth rate D0

2 . 00

D1

2 . 40 D0*(1+Growth Rate)

twenty percent Growth

D2

2 . 88 D1*(1+Growth Rate)

20% Growth

D3

a few. 08 D2*(1+Growth Rate)

7% Growth

Step 3: Calculate the horizon benefit of D3

3. 08/0. 12-0. 07=61. 6

Horizon Value sama dengan D3 as well as (required...

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