Constant growth stock valuation example
[DOCX File]JustAnswer
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May 09, 2014 · Constant Growth Valuation. 1. Woidtke Manufacturing's stock currently sells for $29 a share. The stock just paid a dividend of $1.25 a share (i.e., D0 = $1.25), and the dividend is expected to grow forever at a constant rate of 5% a year. What stock price is expected 1 year from now? Round your answer to the nearest cent.$ P 1 =$29*1.05= $30.45
[DOC File]RWJ 7th Edition Solutions
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We can find the price of the stock in Year 3 since the dividend growth rate is constant after the third dividend. The price of the stock in Year 3 will be the dividend in Year 4, divided by the required return minus the constant dividend growth rate. So, the price in Year 3 will be: P3 = Au$5.20(1.20)(1.15)(1.10)(1.05) / (.13 – .05) = Au$103.60
[DOC File]Common Stock Valuation
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Dividends expected to grow at a constant rate, g, over time. where. g: growth rate. ke: required return. Ke > g. D1 is the expected dividend at end of the first period. D1 =D0 (1+g) Implications of constant growth. Stock prices grow at the same rate as the dividends (g) Problem: what if higher growth in price than dividends or visa versa. Stock ...
Chapter 9
is equivalent to the valuation model for preferred stock. assumes the highest required return possible. (c, easy) 9. The dividend model that is most appropriate for a young company that pays small dividends now but is expected to increase dividends in a few years is the: zero-growth model. constant growth model. expansion growth model.
CHAPTER 7
EQUITY MARKETS AND STOCK VALUATION. ... another example is a company in financial distress. This question is examined in depth in a later chapter. 4. ... The stock begins constant growth after the fourth dividend is paid, so we can find the price of the stock at Year 4, when the constant dividend growth begins, as: P 4 = D 4 ...
Review Sheet for Exam 1
Stock Valuation (Chapter 9) Be able to calculate the stock price (or other missing variable) using the discounted cash flow approach (e.g., constant dividend growth and differential growth) Understand why you can value a share of stock as PV of all dividends. Understand terms of the model and what happens when the variables change
[DOC File]FIN432 Investments
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In the constant-growth (Gordon) model, P0 = D1/(k – g) and the required return, k, must exceed the dividend growth rate, g, to calculate a finite stock price. When k > g, the constant growth model can derive useful valuation estimates.
[DOC File]Chapter 1 -- An Introduction To Financial Management
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The growth rate (g) plays an important role in stock valuation. The general dividend discount model: Rationale: estimate the intrinsic value for the stock and compare it with the market price to determine if the stock in the market is over-priced or under-priced ... Figure 7-5: Non-Constant Growth Stock. Example: if N = 3 gs = 30%, gn = 8%, D0 ...
[DOC File]Slide 1
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D0 = $2.10 D1 = $2.10(1.06) = $2.226 * * Stock Valuation if Dividends Display Constant Growth (Forever) If the dividend payments on a stock are expected to grow at a constant rate, g, and the discount rate is rs, then the value of the stock at time 0 is g must be less than rs for this to be valid.
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