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    Chapter 10 Stocks

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    biserapatce2
    The document contains information about calculating stock prices and dividend values given earnings per share, payout ratios, required rates of return, and expected growth rates. It includes examples of calculating stock prices for companies with stable dividends as well as those where dividends are expected to grow at certain rates in the future before stabilizing. The key factors considered are current dividends, required rates of return, and dividend growth expectations.

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    Chapter 10 Stocks

    Uploaded by

    biserapatce2
    30 views8 pages
    The document contains information about calculating stock prices and dividend values given earnings per share, payout ratios, required rates of return, and expected growth rates. It includes examples of calculating stock prices for companies with stable dividends as well as those where dividends are expected to grow at certain rates in the future before stabilizing. The key factors considered are current dividends, required rates of return, and dividend growth expectations.

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    intro to finance

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    chapter 10 stocks

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    The document contains information about calculating stock prices and dividend values given earnings per share, payout ratios, required rates of return, and expected growth rates. It includes examples of calculating stock prices for companies with stable dividends as well as those where dividends are expected to grow at certain rates in the future before stabilizing. The key factors considered are current dividends, required rates of return, and dividend growth expectations.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    30 views8 pages

    Chapter 10 Stocks

    Uploaded by

    biserapatce2
    The document contains information about calculating stock prices and dividend values given earnings per share, payout ratios, required rates of return, and expected growth rates. It includes examples of calculating stock prices for companies with stable dividends as well as those where dividends are expected to grow at certain rates in the future before stabilizing. The key factors considered are current dividends, required rates of return, and dividend growth expectations.

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
    of 8

    Chapter 10: Stocks

    Slavica 071218658
    If stock’s earnings per share are $2.00, what will be the dividend per share if the
    payout ratio is 40 percent? If the following year’s earnings per share are $2.10,
    what will the payout ratio be if the firm wants to maintain dividend growth of 8
    percent.

    Dividend per share = Earnings per share * Payout Ratio (DIV=EPS* PR)
    A) DIV= 2*0,4=0,8

    B) DIV1=DIV (1+GROWTH)
    The Fridge-Air Company’s preferred stock pays a dividend of $4.50 per
    share annually. If the required rate of return on comparable quality
    preferred stocks is 14 percent, calculate the value of Fridge-Air’s preferred
    stock.

    Stock price = DIV/ r


    The Lo Company earned $2.60 per share and paid a dividend of $1.30 per share
    in the year just ended. Earnings and dividends per share are expected to grow at a
    rate of 5 percent per year in the future.
    Determine the value of the stock:
    a. The required rate of return is 12 percent.
    b. The required rate of return is 15 percent
    A)Required return= 12%, growth=5%
    Stock price= D0 (1+growth)/ (required return-growth) =1.365/(0.12-0.05)= 1.365/0.07=$19.50
    Value of stock is $19.50

    b) Required return= 15% growth=5%


    Stock price= D0 (1+growth)/(required return-growth) =1.365/(0.15-0.05)= 1.365/0.10=$13.65
    Value of stock is $13.65
    c) when the investor required return increases then the stock price decreases. So when required return
    increases by 3% then value of stock will decrease by $5.85
    davinci.education
    Mercier Corporation’s stock is selling for $95. It has just paid a dividend of $5 a share. The expected growth
    rate in dividends is 8 percent.

    a. What is the required rate of return on this stock?


    b. Using your answer to (a), suppose Mercier announces developments that should lead to dividend increases of
    10 percent annually. What will be the new value of Mercier’s stock?
    c. Again, using your answer to (a), suppose developments occur that leave investors expecting that dividends
    will not change from their current levels in the foreseeable future. Now what will be the value of Mercier stock?
    d. From your answers to (b) and (c), how important are investors’ expectations of future dividend growth to the
    current stock price?

    A)R= D0 (1+growth)/SP +growth


    B) SP= D0 (1+growth)/ (required return-growth)
    C) growth=0% SP= D0 (1+growth)/ (required return-growth)
    d) From parts b) and c) we can see that as the growth rate increases , the price of the stock increases meaning
    that there is a linear relationship between the 2
    Ritter incorporated paid a dividend of $2 per share. Its management team has announced a
    technological breakthrough that is expected to result in a temporary increase in sales, profits, and
    common stock dividends. Analysts expect the firm’s per share dividends to be $2.50 next year, $3
    in two years, and $3,50 in three years. After that normal dividend growth of 5% is expected to
    resume. If Ritter shareholders expect 15% return on their investment, what should the firm’s stock
    price be?
    Thanks!
    Do you have any questions?
    davinci.education
    +071218658
    yourwebsite.com

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