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The constant-growth dividend discount model can be used both for the valuation of companies and for the estimation of the long-term total return of a stock.
Assume: $20 = Price of a Stock Today8% = Expected Growth Rate of Dividends$0:60 = Annual Dividend One Year Forward
a. Using only the preceding data, compute the expected long-term total return on the stock using the constant-growth dividend discount model.
b. Briefly discuss three disadvantages of the constant-growth dividend discount model in its application to investment analysis.
c. Identify three alternative methods to the dividend discount model for the valuation of companies.
Executive Chalk is financed solely by common stock and has outstanding twenty-five million shares with a market price of $10 a share. It now declared that it intends to issue $160 million of debt and to use the proceeds to buy back common stock.
The market risk premium is 8.2 percent, T-bills are yielding 3 percent, and Titan Mining's tax rate is 35 percent.
You want to have $2 million in real dollars in an account when you retire in 50 years. The nominal return on your investment is 10 percent and the inflation rate is 6 percent. What real amount must you deposit each year to achieve your goal?
The next dividend payment by Wyatt, Inc., will be $3.40 per share. The dividends are anticipated to maintain a growth rate of 7.75 percent, forever. Assume the stock currently sells for $50.40 per share.
Suppose you are sitting in your office one evening, you begin to think about some of the key microeconomic messages you want to communicate to the Board.
Assumee the market portfolio has an expected return of 10% and a volatility of 20%, while Microsoft's stock has a volatility of 30 percent.
For each of the scenarios below, explain whether or not it represents a diversifiable or an undiversifiable risk. Please consider the issues from the viewpoint of investors. Explain your answer.
it makes no coupon payments over the life of the bond. The required return on both these bonds is 10 percent compounded semiannually.
A Company with sales in 2003 of $ 102,123,000 closed out 2004 with sales of $ 112,250,000 and net operating incomes (EBIT) of $ 25,530,000 and $ 28,758,000 respectively.
After collection all the information and prepares the following table - accordingly, compute the component costs of debt, preferred stock, and common stock.
Suppose you are planning the purchase of an invest that would pay you $5,000 per year for years 1-5, $3,000 every year for years 6 to 8, and $2,000 each year for years 9 and 10.
Compute the realized rate of return for investors who purchased the bonds when they were issued and who surrender them today in exchange for the call price. Round your answer to two decimal places.
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