An investor with a required return of 14 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase. The information as follows: Firm A B Current earnings $2.10 $3.50 $6.80 Current dividend $1.70 $4.30 $8.10 Expected annual growth rate in 5% 3% -3% dividends and earnings Current market price $ 25 $ 48 $ 54 a. What is the maximum price that the investor should pay for each stock based on the dividend-growth model? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ b. If the investor does buy stock A, what is the implied percentage return? Round your answer to two decimal places. % c. If the appropriate P/E ratio is 15, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the appropriate P/E ratio is 6, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $

An investor with a required return of 14 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase. The information as follows: Firm A B Current earnings $2.10 $3.50 $6.80 Current dividend $1.70 $4.30 $8.10 Expected annual growth rate in 5% 3% -3% dividends and earnings Current market price $ 25 $ 48 $ 54 a. What is the maximum price that the investor should pay for each stock based on the dividend-growth model? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ b. If the investor does buy stock A, what is the implied percentage return? Round your answer to two decimal places. % c. If the appropriate P/E ratio is 15, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the appropriate P/E ratio is 6, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter16: Financial Statement Analysis

Section: Chapter Questions

Problem 2MAD

See similar textbooks

Similar questions

An investor with a required return of 15 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase. The information is as follows: Firm A B C Current earnings $ 2.40 $ 3.20 $ 7.50 Current dividend $ 0.90 $ 3.80 $ 6.90 Expected annual growth rate in 5 % 1 % -1 % dividends and earnings Current market price $ 16 $ 31 $ 49 What is the maximum price that the investor should pay for each stock based on the dividend-growth model? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the investor does buy stock A, what is the implied percentage return? Round your answer to two decimal places. % If the appropriate P/E ratio is 12, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the appropriate P/E ratio is 4, what is the maximum…
An investor with a required return of 14 percent for very risky investment in common stock has analyzed three firms and must decide which, if any, to purchase firm A B C current earnings $2.00 $3.20 $7.00 current dividend $1.0 $3.00 $7.50 expected annual growth rate in 7% 2% -1% dividends and earnings Current market price $23 $47 $60 what is the maximun price that investor should pay for each stock based on the dividend growth model? b. if the investor does buy stock A, what is the implied percentage return? c. if the appropiate P/E ratio is 12, what is the maximun price the investor should pay for each stock? would your answer be differeny if the appropiate P/E were 7? d. what…
An investor with a required return of 14 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase. The information is as follows: Firm Current earnings Current dividend Expected annual growth rate in dividends and earnings Current market price $18 $ 22 $ 52 a. What is the maximum price that the investor should pay for each stock based on the dividend-growth model? Round your answers to the nearest cent. Stock A: $ Stock B: $ A B с $1.70 $3.50 $7.20 $0.90 $2.10 $7.00 -1% % 5% Stock C: $ b. If the investor does buy stock A, what is the implied percentage return? Round your answer to two decimal places. Stock C: $ 1% c. If the appropriate P/E ratio is 12, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the appropriate P/E ratio is 3, what is the maximum price the investor should pay for each stock? Round your answers to the nearest…
You researched Turnkey Investment's financial data and gathered the following information: Current price per share of stock $72 Expected market risk premium 9.9% financial reports clipart Dividend per share paid just recently = $ 5.32 Risk free interest rate 6% Expected annual growth of dividend per share 5% Stock Beta 1.87 Calculate the company's cost of equity using the Dividend Growth Model approach. Your answer should be in percent, not in decimals: e.g., 12.34 rather than 0.1234
Consider the following security: Applegate Aeronautical, Incorporated Earnings Per Share, Next Year $2.50 Dividend Payout Rate 0.400 Return on Equity 0.150 Beta 1.250 Market Data Market Risk Premium 0.075 Risk-free Rate 0.025 Required: Using the information in the tables above, please calculate the dividend per share, the retained earnings, and the intrinsic value of this stock. (Use cells A5 to B12 from the given information to complete this question.) Applegate Aeronautical, Incorporated Market Capitalization Rate Dividends per share (Next Year) Sustainable Growth Rate Intrinsic Value
Financial analyst of Castle Investment Trust has gathered the following information on FRIVY Inc. and the market: Current market price per share of common stock €76.5Most recent dividend per share paid on common stock € 5.2Expected dividend payout rate 32%Expected return on equity (ROE) 12.5%Beta for the common stock 1.43Expected return on the market portfolio 13.40%Risk-free rate of return 4.20%Using the dividend discount model approach, estimate the cost of common equity for the company.
An analyst gathers the following information about a company and the market: Current market price per share of common stock €38.00 Most recent dividend per share paid on common stock €2.50 Expected dividend payout rate 30% Expected return on equity (ROE) 12% Beta for the common stock 1.5 Expected return on the market portfolio 12% Risk-free rate of return 4% Using the dividend discount model approach, the cost of common equity for the company is closest to:
PLEASE SOLVE THIS QUESTION, ASAP: Q: Suppose a company estimates following one year returns from investing in the common stock of Leopard Corporation: Possibility of Occurrence .1 .25 .1 .15 .1 .2 .1 Possible returns 15% 30% 15% -10% -5% 20% 10% Required: Calculate Expected return & Risk {Standard Deviation)
1. A share of stock of company is now selling for 23.5 lei. A financial analyst summarizes the uncertainty about the rate of return on the stock by specifying three possible scenarios: Scenario Probability 0.35 End-of-year price 35 27 Annual dividend 4.4 II 0.3 4 15 Compute the expected return and risk on this security. III 0.35 4
A firm is expected to pay a $2 dividend in year 1, a $3 dividend in year 2, a $4 dividend in year 3, and a $5 dividend in year 4. Dividends are expected to grow 6.50% per year thereafter. Investors require a 7.50% return. What should the stock be worth today? Multiple Choice $11.42 $410.16 $543.92 $326.67
EXCEL PROJECT AND EXCEL SOLUTION Consider the following stocks, all of which will pay a liquidating dividend in a year and nothing in the interim: Stock A Stock B Stock с Stock D Market Capitalization (5 million) 800 750 950 900 Expected Liquidating Dividend ($ million) 1000 1000 1000 1000 Beta PLEASE SHOW SOLUTIONS IN EXCEL 0.77 1.46 1.25 1.07 a. Calculate the expected return of each stock. b. What is the sign of correlation between the expected return and market capitalization of the stocks? In Problem 20, assume the risk-free rate is 3% and the market risk premium is 7%. a. What does the CAPM predict the expected return for each stock should be? b. Clearly, the CAPM predictions are not equal to the actual expected returns, so the CAPM does not hold. You decide to investigate this further. To see what kind of mistakes the CAPM is making, you decide to regress the actual expected return onto the expected return predicted by the CAPM.49 What is the intercept and slope coefficient of…
Given the following information for the stock of Foster Company, calculate the risk premium on its common stock. Current price per share of common stock $58.14 Expected dividend per share next year $1.95 Constant annual dividend growth rate 7.5% Risk-free rate of return 7.2% a. The risk premium on Foster stock is ___ % Just need that a answered