BFN 110 Lecture Notes - Lecture 9: Tunxis Community College

13 views2 pages

coralimpala133

6 Jan 2021

School

Tunxis Community College

Department

Business – Finance

Course

BFN 110

Professor

garside

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

The value of a share is equal to the present value of future cash flows. For a share, the future cash flows are the expected dividends. Equity can be valued using tvm concepts. The interest rate" is the required return. Current value of a share is the present value of all future dividend payments. In the case of shares, if dividends are constant. P0 = the value of the share at time zero (pv) D = the constant dividend mount (pmt) A company has just paid a dividend of sh. 50 and it"s not expected to change. Share price = p0 = 0. 50 / 0. 11 = . 55. If dividends are expected to change at the same (constant) rate, then the share price is given by. D1 is the dividend at time 1. (next year"s dividend) d1 = d0 (1 + g) A company just paid a dividend of sh. 70, return = 25%, growth = 8%

Related Questions

PLEASE SHOW ALL FORMULAS:

Facts:
The Current risk free rate is			10.0%
Market is providing a return of			15.0%
Beta of			1.30

Recent History of Dividends per share:
Expect to pay dividend per share next year of			3.18

Year	Dividend
2015	2.94
2014	2.75					Calculator
2013	2.48				Input	Function
2012	2.36					PV
2011	2.14					FV
2010	2.00					N
A) Calculate the constant growth rate:
Average annual growth rate in percent				Solve for I	=

Do parts B, C and D, using the Capital Asset Pricing Model (CAPM):

B) Determine the maximum cash price should pay for each share
		CAPM =
P = D / (r - g)		P = D / (r - g)			$ -
D (Per Share Dividend) Expected		D (Dividend) =
r (Required Return)		r (CAPM Rate) =
g (Growth rate)		g (Growth rate) =

C) Determine the effect on stock price if a 3% higher growth rate than shown in history.
		CAPM =
P = D / (r - g)		P = D / (r - g)			$ -
D (Per Share Dividend) Expected		D (Dividend) =
r (Required Return)		r (CAPM Rate) =
g (Growth rate)		g (Growth rate) =

D) If facts are same as B) above but Beta has changed to 1.0, determine max. cash price per share
		CAPM =
P = D / (r - g)		P = D / (r - g)			$ -
D (Per Share Dividend) Expected		D (Dividend) =
r (Required Return)		r (CAPM Rate) =
g (Growth rate)		g (Growth rate) =

The XYZ-stock trading at the Oslo Stock Exchange just paid a dividend of 2.15 per share. Based on the market price of risk, a required rate of return of 15% on the stock is appropriate. The next dividend payment on the XYZ-stock will take place in exactly one year. Currently, 10 million common shares are outstanding (issued and traded) in the XYZ-corporation. Among market analysts, there is substantial disagreement over the XYZ-stockâs future growth prospects. Your investment advisor believes that the stock could shortly trade substantially above its current level, pending favorable news regarding earnings per share (EPS). Other analysts recommend the stock be priced based on only modest growth in dividend from its present level. Assume in the following that 15% is an appropriate required rate of return on the stock independent of future growth scenarios. Be sure to show your calculations when working out your answers to the questions below:

(a) Assuming 4% perpetual growth in dividends per share; what is the most likely market value per share?

(b) Assuming the XYZ-stock enjoys super-growth of 10% in dividends per share during the first five years and 4% in subsequent years thereafter; what market value per share is consistent with this scenario?

(c) Assume that the XYZ-stock with 50% probability will pay constant dividend, and with 50% probability the dividends will grow by 10%. What is a likely market value?

crimsonhound163

Suppose that a firmâs recent earnings per share and dividend per share are $3.20 and $2.20, respectively. Both are expected to grow at 8 percent. However, the firmâs current P/E ratio of 31 seems high for this growth rate. The P/E ratio is expected to fall to 27 within five years. Compute the dividends over the next five years.

Compute the value of this stock in five years.

Calculate the present value of these cash flows using a 10 percent discount rate.

byzantiummole774

BFN 110 Lecture Notes - Lecture 9: Tunxis Community College

Document Summary

Get access

Related Documents

BFN 110 Lecture Notes - Lecture 17: Tunxis Community College, Common Stock, Issued Shares

BFN 110 Lecture Notes - Lecture 19: Tunxis Community College, Cash Management, Inventory Control

BFN 110 Lecture Notes - Lecture 16: Capital Asset Pricing Model, Dividend Discount Model, Tunxis Community College

Related Questions