Expanding rapidly-currently needs to retain all of eaarnings

Assignment Help Financial Management
Reference no: EM131014898

Nonconstant growth Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $1.25 coming 3 years from today. The dividend should grow rapidly - at a rate of 27% per year - during Years 4 and 5; but after Year 5, growth should be a constant 6% per year. If the required return on Microtech is 18%, what is the value of the stock today? Round your answer to the nearest cent.

Reference no: EM131014898

Questions Cloud

View point of both the firm and it''s bondholders : A sinking fund can be set up in one of two ways. What are the advantages and disadvantage of each procedure from the view point of both the firm and it's bondholders?
Calculate openness as percentage for brazil and el salvador : Calculate openness as a percentage for Brazil and El Salvador. Explain how you calculated openness. Using a graph of Openness (as a percentage) versus time, explain in up to 100 words how openness has changed for these countries from 1995 to 2012. Ma..
What is the probability : What is the probability that the random variable has a value between 0.6 and 0.8
Cost of equity with and without flotation : Javits & Sons' common stock currently trades at $27.00 a share. It is expected to pay an annual dividend of $3.00 a share at the end of the year (D1 = $3.00), and the constant growth rate is 6% a year. What is the company's cost of common equity if a..
Expanding rapidly-currently needs to retain all of eaarnings : Nonconstant growth Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $1.25 comin..
What is the cost of the preferred stock-including flotation : Cost of Preferred Stock Including Flotation Trivoli Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is currently selling for $115.00; but flotation costs will be 8% of the market price, so the net price will be ..
What are reasonable values for the van der waals constants : What deviations from ideality would you expect at these reaction conditions? In order of importance, list the types of intermolecular forces you think contribute to nonideality. Is the van der Waals equation appropriate? Explain.
Contemplating a new investment : The Walgreen Corporation is contemplating a new investment that it plans to finance using one-third debt. The firm can sell new $1,000 par value bonds with a 15-year maturity at a price of $955 that carry a coupon interest rate of 13.3 percent that i..
Issue perpetual preferred stock : Cost of Preferred Stock Tunney Industries can issue perpetual preferred stock at a price of $61.50 a share. The stock would pay a constant annual dividend of $5.50 a share. What is the company's cost of preferred stock, rp? Round your answer to two d..

Reviews

Write a Review

Financial Management Questions & Answers

  Plans to increase production at a rate

Cooling Tools, Inc. is currently producing 978 of small refrigerators per month but the company’s CEO plans to increase production at a rate of 7.60 percent per month until the firm is producing 5,555 of refrigerators per month. How many months will ..

  Replace an existing assembly with a more modern version

The Cement Corp is planning to replace an existing assembly with a more modern version. the old equipment was purchased 5 years ago for $500,000 and depreciated to a zero value over the 5 years. If the cost of capital is 16% and the tax rate is 40%, ..

  How many units of the asset should be bought or sold

A call option on an asset has a delta of 0.3. A trader has sold 3,000 options and wants to create a delta-neutral position. Should the trader take a long or short position in the asset? How many units of the asset should be bought or sold?

  Dividends are expected to grow at rate

Janicex Co. is growing quickly. Dividends are expected to grow at a rate of 24 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 11 percent and the company just paid a div..

  Discuss recent economic conditions in the industry

First, you need to pick a public company to analyze. You should have already informed me of the company you have picked. Discuss recent economic conditions in the industry, as well as prospects for the future

  Using net present value when evaluating projects

Green Landscaping, Inc. is using net present value (NPV) when evaluating projects. Green Landscaping’s cost of capital is 5.76 percent. What is the NPV of a project if the initial costs are $2,478,570 and the project life is estimated as 12 years? Th..

  Define what is the coupon rate for a bond

What is the coupon rate for a bond (face value $1,000) with five years until maturity, a price of $957.88, and a yield to maturity of 6%? What is the current yield for this bond?

  Considering two mutually exclusive investments

The Smith Pie Company is considering two mutually exclusive investments that would increase its capacity to make strawberry tarts. The firm uses a 12 percent cost of capital to evaluate potential investments. Assume that the cost of replacing A will ..

  Reasonable costs of capital for average-risk-high-risk

Distinguish between beta (i.e market) risk, within-firm ( i.e,corporate) risk, and stand-alone risk for a potential project. Of the three measures, which is theoretically the most relevant, and why? Suppose a firm estimates its overall cost of capita..

  What is the return on assets

The After Life has sales of $428,300, total assets of $389,100, and a profit margin of 7.2 percent. What is the return on assets?

  What type of bond is originally issued

What type of bond is originally issued at a 8% coupon bond but the market now requires a 9% yield?

  Maximal share price at which you will invest in venture

Your investment strategy is to maximize expected return but with a risk level (standard deviation) that does not exceed 15%. Since you are a CAPM believer, you hold a combination of the market portfolio and risk free asset. In the public offering NAS..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd