ADMS 3530 Lecture Notes - Lecture 7: Dividend Yield, Current Yield, Preferred Stock

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byzantiumdog699

30 Nov 2016

School

York University

Department

Administrative Studies

Course

ADMS 3530

Professor

Kwok Sum Ho

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Document Summary

Dividend yield is similar as current yield. It ignores the rate of return on the stock itself. P/e (cid:396)atio (cid:373)ea(cid:374)s that"s the a(cid:373)ou(cid:374)t a(cid:374) i(cid:374)(cid:448)esto(cid:396) is (cid:449)illi(cid:374)g to pay a (cid:272)e(cid:396)tai(cid:374) a(cid:373)ou(cid:374)t fo(cid:396) e(cid:448)e(cid:396)y of the firms eps. If its 20, then investors are willing to pay for every of the firms eps. Book value: whatever the balance sheet value is: assets-liabilities. Book value of equity (book value per share): book value/outstanding shares. 1 is the expected dividend year from today, 1 is the expected stock price next year, and. Current stock price is the present value of future benefits. , for 2 year horizon (present value of the future benefits (dividends)). If it goes on forever (perpetuity), there are two ways to value them. 1 gr g is the growth rate r has to be bigger than g. Have to use divt+1 to calculate pt. if you calculate p12, use div13.

Related Questions

Nonconstant growth valuation

Hart Enterprises recently paid a dividend, D₀, of $1.50. It expects to have nonconstant growth of 20% for 2 years followed by a constant rate of 3% thereafter. The firm's required return is 14%.

How far away is the horizon date?

The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2.

The terminal, or horizon, date is infinity since common stocks do not have a maturity date.

The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected dividends at time zero.

The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero.

The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2.

-Select-IIIIIIIVVItem 1 {C}

What is the firm's horizon, or continuing, value? Round your answer to two decimal places.

$

What is the firm's intrinsic value today, P₀? Round your answer to two decimal places.

$

ANSWER FULLY AND EXPLAIN

taupemuskrat521

The Horizon Corp. has 40 million shares of common stock with a current market price of $14.00 per share. They have $270 million in par value of long-term bonds outstanding that currently sell for $935 per $1,000 par value. The bonds have a coupon rate of 7.6% and a maturity of 20 years. Assume annual coupon payments. Horizon also has $120 million in par value of preferred stock with a current market price of $108 per $100 of par value. The dividend on this preferred stock is $8.80 per year. Flotation costs on new preferred stock will be about 3%.

The dividend on common stock in the most recent year (i.e. D₀) was $0.60. The firm has a growth rate of 4.5% that is expected to continue indefinitely into the future. On new common stock flotation costs would be about 8%. Flotation costs on new bonds would be negligible.

1. Discuss, in general terms, how a firmâs investment policy can affect its WACC

2. Explain how a companyâs capital structure policy could affect its WACC

rosesea-lion392

Part A

An investor just purchased a 10-year, $1,000 par value bond. The coupon rate on this bond is 8 percent annually, with interest being paid every 6 months. If the investor expects to earn a 10 percent simple rate of return on this bond, how much should she pay for it? (Round the answer to two decimal places.)

Part B

Assume that an investor wishes to purchase a 20-year bond with a maturity value of $1,000 and semiannual interest payments of $40. If the investor requires a 10 percent simple yield to maturity on this investment, what is the maximum price she should be willing to pay for the bond? (Round the answer to the nearest whole number.)

A 619

B 902

C 828

D 674

Tony's Pizzeria plans to issue bonds with a par value of $1,000 and 10 years to maturity. These bonds will pay $45 interest every 6 months. Current market conditions are such that the bonds will be sold at net $937.79. What is the yield to maturity (YTM) of the issue as a broker would quote it to an investor? (Round the answer to the nearest whole number.)

		9%
		10%
		11%
		7%

The last dividend on Spirex Corporation's common stock was $4.00, and the expected growth rate is 10 percent. If you require a rate of return of 20 percent, what is the highest price you should be willing to pay for this stock?

		$44.00
		$38.50
		$50.00
		$45.69

turquoiseoyster411

ADMS 3530 Lecture Notes - Lecture 7: Dividend Yield, Current Yield, Preferred Stock

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