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FIN 302 Lecture Notes - Lecture 8: Cash Flow, Growth Stock, Proxy Voting

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Verified Note
goldfox765
4 Feb 2019
School
U of M
Department
Finance
Course
FIN 302
Professor
Qin Lei

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6

FIN 302 Lecture 6: Lecture 4 Chapter 7

8

FIN 302 Lecture Notes - Lecture 8: Cash Flow, Growth Stock, Proxy Voting

10

FIN 302 Lecture Notes - Lecture 10: Payback Period, Net Present Value, If And Only If

Document Summary

Stock is: a certificate of ownership in a corporation, a claim of the value of the firm. Stockholder may or may not receive dividend each quarter. Dividend can be affected by many factors, such as: amount of cash that"s available for the firm, debt contracts payments, limitation by government and regulations. As investors of the stock, you may receive cash in two ways: the company of the stock pays dividend, selling the share and the share worth more than the time you bought it. The price of the stock reflects present value of all future cash flows. Stock cash flow vs bond cash flow: stock cash flow is not guaranteed, stock cash flow is not constant, stock cash flow never stops (unless the company stop paying dividend) Where r is the discount rate g is the growth rate. This formula applies only when dividend growing at a fixed rate.

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Related Questions

Integrated Potato Chips paid a $2.20 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 4% per year.
a.

What is the expected dividend in each of the next 3 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Expected Dividend
Year 1 $
Year 2
Year 3
b.

If the discount rate for the stock is 12%, at what price will the stock sell today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Current price $
c.

What is the expected stock price 3 years from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Future price $
d.

If you buy the stock and plan to hold it for 3 years, what payments will you receive? What is the present value of those payments? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)
d.

If you buy the stock and plan to hold it for 3 years, what payments will you receive? What is the present value of those payments? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)
Year 1 Year 2 Year 3
Dividend $ $ $
Sale of stock
Total cash flow $ $ $
PV of cash flow $ $ $

Assume that the average firm in your company's industry is expected to grow at a constant rate of 5% and that its dividend yield is 7%. Your company is about as risky as the average firm in the industry, but it has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 50% [D1 = D0(1 + g) = D0(1.50)] this year and 20% the following year, after which growth should return to the 5% industry average. If the last dividend paid (D0) was $1.75, what is the value per share of your firm's stock? Round your answer to the nearest cent. Do not round your intermediate computations.

Assume that the average firm in your company's industry is expected to grow at a constant rate of 6% and that its dividend yield is 7%. Your company is about as risky as the average firm in the industry, but it has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 50% [D1=D0(1+g) = D0(1.50)] this year and 25% the following year, after which growth should return to the 6% industry average. If the last dividend paid (D0) was $1, what is the estimated value per share of your firm's stock?

The answer in the back of the book is $25.03 however i can't figure it out.