## Dividend Discount Model Questions and Answers

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What are the steps to obtain the expected stock price 5 years from now if stock is currently selling for $62.8 per share. The dividend is projected to increase at a constant rate of 7.5% per year. Required rate of return on the stock is 12%.

BioScience Inc. will pay a common stock dividend of $3.90 at the end of the year (D1). The required return on common stock (Ke) is 22 percent. The firm has a constant growth rate (g) of 10 percent. Compute the current price of the stock (P0).

Consider a firm that has been priced using a 10% growth rate and a 15% required rate. The firm recently paid a $1.30 dividend. The firm has just announced that because of a new joint venture it will likely grow at a rate of 12%. How much should stock pri

Barton Industries expects next year's annual dividend, D1, to be $2.30 and it expects dividends to grow at a constant rate g = 4.6%. The firm's current common stock price, P0, is $20.50. If it needs to issue new common stock, the firm will encounter a 4.9

Shares of the Katydid Co. common stock are currently selling for $33.60. The last dividend paid was $1.60 per share. The market rate of return is 10%. At what rate is the dividend growing? Assume the market is in equilibrium.

The Starr Co. just paid a dividend of $2.10 per share on its stock. The dividends are expected to grow at a constant rate of 5% per year, indefinitely. Investors require a return of 14 percent on the stock. What is the current price?

Which of the following statements is correct? a. The constant growth model takes into consideration the capital gains investors expect to earn on a stock. b. Two firms with the same expected dividend and growth rates must also have the same stock price. c

Nahanni Treasures Corporation is planning a new common stock issue of five million shares to fund a new project. The increase in shares will bring to 25 million the number of shares outstanding. Nahanni's long-term growth rate is 6%, and its current requi

Fed Ex common stock currently trades at $51.00 and its most recent annual dividend was $1.40. On Sunday night, FedEx issued a press release indicating that future years' dividends will continue to grow at 3.0%, a little in excess of historical inflation.

John's Catering is growing at a very fast rate. As a result, the company expects to increase its dividend to $0.45, $0.95, $1.60, and $2.15 over the next four years, respectively. After that, the dividend is projected to increase by 6 percent annually. Th

Staggert Corp. will pay dividends of $5.00, $6.25, $4.75, and $3.00 in the next four years. Thereafter, the company expects its dividend growth rate to be constant at 6 percent. If the required rate of return is 18.5 percent, what is the current value of

Triton Inc., is expected to grow at a rate of 22 percent for the next five years and then settle to a constant growth rate of 6 percent. The company recently paid a dividend of $2.35. The required rate of return is 15 percent. a. Find the present value of

Underestimated Inc. s common shares currently sell for $36 each. The firm's management believes that its shares should really sell for $54 each. If the firm just paid an annual dividend of $2 per share and management expects those dividends to increase by

The Bravo Company just paid an annual dividend of $4.00 per share. Due to a need to conserve cash, the dividend in one year will be cut to zero. Dividends per share are forecasted to be $1.50 in two years, $2.50 in three years, and $3.50 in four years. Af

Tom Laboratory's common stock is currently selling at $60 per share. The next annual dividend is expected to be $3 per share, and the earnings, dividends, and stock prices are expected to grow at a rate, of (a) 0 percent, (b) 4 percent, and (c) 6 percent.

The stock of Dravo Corporation currently pays a dividend (D0) at the rate of $2 per share. This dividend is expected to increase at a 9 percent annual rate for the next three years, at a 7 percent annual rate for the following two years, and then at 4 per

Messman Manufacturing will issue common stock to the public for $30. The expected dividend and the growth in dividends are $3.00 per share and 5%, respectively. If the floating cost is 2% of the issue proceeds, then what is the after-tax cost of debt? Dis

Amador Corporation has a stock price of $24 a share. The stock's year-end dividend is expected to be $2 a share. The stock's required rate of return is 12 percent and the stock's dividend is expected to grow at the same constant rate forever. What is the

The High Growth Company's last dividend was $1.50. The dividend growth rate is expected to be constant at 30% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If High Growth's required return is 13%, what is the company's

A company's common stock is selling for $16. The stock just paid a dividend (D0) of $.60 and this dividend is expected to grow by 15% per year for three years. After that it will grow at a constant rate of 4%. The stock's beta is 1.7, the risk-free rate o

Crystal Glass recently paid $3.60 as an annual dividend. Future dividends are projected at $3.80, $4.10, and $4.25 over the next 3 years, respectively. Beginning 4 years from now, the dividend is expected to increase by 3.25 percent annually. What is one

Given the following information, calculate the expected capital gains yield for Bimlo Bottle Caps: beta=0.6 km=15% Rf=8% D1=$2.00 P0=$25.00 Assume the stock is a constant growth stock and is in equilibrium.

Silicon Water Company currently pays a dividend of $1 per share and has a share price of $20. If the dividend was expected to grow at 20%t for five years and at 10% per year thereafter. Now, what is

Carnes Cosmetics Co.'s stock price is $52.97, and it recently paid a $2.25 dividend. This dividend is expected to grow by 19% for the next 3 years, then grow forever at a constant rate, g; and rs = 14

The next dividend payment by Dizzle, Inc., will be $2.55 per share. The dividends are anticipated to maintain a growth rate of 6% forever. Assume the stock currently sells for $48.70 per share. What i

Allen, Inc., is expected to pay equal dividends at the end of each of the next two years. Thereafter, the dividend will grow at a constant annual rate of four percent, forever. The current stock price

Carnes Cosmetics Co.'s stock price is $38.37, and it recently paid a $2.25 dividend. This dividend is expected to grow by 21% for the next 3 years, then grow forever at a constant rate, g; and rs =15%

Carnes Cosmetics Co.'s stock price is $65.66, and it recently paid a $1.50 dividend. This dividend is expected to grow by 28% for the next 3 years, then grow forever at a constant rate, g; and rs = 14

Carnes Cosmetics Co.'s stock price is $69.04, and it recently paid a $2.25 dividend. This dividend is expected to grow by 30% for the next 3 years, then grow forever at a constant rate, g; and rs = 16

Next year's earnings are estimated to be $2. The company plans to reinvest 25% of its earnings at 20%. If the cost of equity is 10%, what is the present value of growth opportunities? a. $9.00 b. $11

Elk county telephone has paid the dividends shown in the following table over the previous 6 years Year Dividend per share 2015 6.08 2014 5.85 2013 5.62 2012 5.41 2011 5.20 2010 5.00 a). If you can e

Discuss the Constant Growth Model of stock valuation. Include in your discussion the advantages, disadvantages and assumptions of the model.

Huang Company's last dividend was $1.25. The dividend growth rate is expected to be constant at 27.5% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs) is 11%, what is its current stock pri

Hart entreprises recently paid a dividend, D0, of 1.25$. the company expected to grow at a constant rate of 5%. the firm's cost of equity is 10%. How far away is the horizon date? What is the firm's horizon or continuing, value? What is the firm's intri

S=\frac{d_1}{1+k}+\frac{d_1(1+g)}{(1+k)^2}+\frac{d_1(1+g)}{(1+k)^3}+...and k > g a. \frac{d_1}{k-g} b. \frac{d_1}{1+k} c. \frac{d_1(1-(\frac{1+g}{1+k})^n}{k-g} d. \frac{d_1(1-(\frac{1+g}{1+k})^n+1}{k-g} e. None of the above

Dismal.Com is a producer of depressing Internet products. The company is currently not paying dividends, but its chief financial officer thinks that starting in 3 years it can pay a dividend of $15 per share, and that this dividend will grow by 20% per ye

Which one of the following statements is correct? a. The capital gains yield is the annual rate of change in a stock's price. b. Preferred stocks have constant growth dividends. c. A constant dividend stock cannot be valued using the dividend growth model

HighGrowth Company has a stock price of $20. The firm will pay a dividend next year of $1, and its dividend is expected to grow at a rate of 4% per year thereafter. What is your estimate of HighGrowth's cost of equity capital?

A company is expected to pay their first annual dividend 2 years from now. That payment will be $1.50 a share. Starting in Year 3, the company will increase the dividend by 5% per year. The required return from common shareholders is 15%. What is the esti

Hart Enterprises recently paid a dividend, D0 of $1.25. It expects to have non-constant growth of 20% for 2 years followed by a constant rate of 5% thereafter. The firm's required return is 10%. What is the firm's horizon, or continuing value?

Suppose Microsoft, Inc. is trading at $27.29 per share. It pays an annual dividend of $0.32 per share, which is double its last year's dividend of $0.16 per share. If this trend is expected to continue, what is the required return on Microsoft?

Winter Time Adventures is going to pay an annual dividend of $2.72 a share on its common stock next week. This year, the company paid a dividend of $2.60 a share. The company adheres to a constant rate of growth dividend policy. What will one share of thi

McDonnell Manufacturing is expected to pay a dividend of $1.50 per share at the end of the year (D1 = $1.50). The stock sells for $34.00 per share, and its required rate of return is 11.5%. The dividend is expected to grow at some constant rate, g, foreve

The market capitalization rate for Admiral Motors Company is 10%. Its expected ROE is 15% and its expected EPS is $7. If the firm's plowback ratio is 50%. a) Calculate the growth rate. b) What will be its P/E ratio?

A Stock pays dividends of $1.00 at t = 1 (D1 is provided, not D0). It is growing at 20% between t =1 and t = 2, after which the growth rate drops to 10%, and will continue at that rate into the future. If the discount rate for this stock is 15%, what shou

Schnusenberg Corporation just paid a dividend of $0.65 per share, and that dividend is expected to grow at a constant rate of 7.00% per year in the future. The company's beta is 1.45, the required return on the market is 10.50%, and the risk-free rate is

City Foods, a rapidly growing convenience store, paid a dividend of $2.00 during 2003. They expect to see their dividend grow at a twenty percent rate for the next two years and then level out at a co

Bill's Bakery expects earnings per share of $2.26 next year. The current book value is $4 per share. The appropriate discount rate for Bill's Bakery is 14%. Calculate the share price for Bill's Baker

Stock XYZ earning at time 0: E0 = $2.50, b = 40%, ROE =1 3%, risk-free rate = 3%, expected return on market portfolio is 9%, the beta of stock XTZ is 1.5 and CAPM is valid. (1) What is the required ra

Value a Constant Growth Stock Financial analysts forecast Wal-Mart Stores (WMT) growth for the future to be 14,00 percent. Their recent dividend was $2.43 What is the value of their stock when the req

Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.80. It expects to grow at a constant rate of 3% per year. If investors require a 9% return on equity, what is the curr

Maxim Inc. reported a per-share book value of $10.47 in its balance sheet on December 31, 2014. In early 2015, analysts were forecasting consensus earnings per share of $1.71 for 2015 and 1.96 for 201

Johnson Corporation's stock is currently selling for $45.83 per share. The last dividend paid (D0) was $2.50. Johnson is a constant growth firm. If investors require a return of 16% on Johnson s stock, what do they think Johnson s growth rate will be?

Assume that you plan to buy a share of XYZ stock today and to hold it for 2 years. Your expectations are that you will not receive a dividend at the end of Year 1, but you will receive a dividend of $9.25 at the end of Year 2. In addition, you expect to

Corporation A has grown at a rate of 5% per year and is expected to continue in that way indefinitely. The next dividend is expected to be $6 per share. If the market expects a 15% rate of return on Corporation A, at what price must it be selling? (In oth

This morning, you purchased a stock that will pay an annual dividend of $1.90 per share next year. You require a 12 percent rate of return and the annual dividend increases at 3.5 percent annually. What will your capital gain be on this stock if you sell

Antiques R Us is a mature manufacturing firm. The company just paid a $10.46 dividend, but management expects to reduce the payout by 4% per year indefinitely. If you require an 11.5% return on this stock, what will you pay for a share today?

Teder Corp. stock currently sells for $64 per share. The market requires a 10 percent return on the firm's stock. If the company maintains a constant 4.5 percent growth rate in dividends, what was the most recent dividend per share paid on the stock?

The Anderson Pipe Co. just paid an annual dividend of $3.75 and is expected to grow at 8% for the foreseeable future. Harley Bevins generally demands a return of 9% when he invests in companies similar to Anderson. What is the most Harley should be willin

Xytex Products just paid a dividend of $2.35 per share, and the stock currently sells for $59. If the discount rate is 14 percent, what is the dividend growth rate?