As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, gro
Posted: Fri Mar 04, 2022 9:36 am
As companies evolve, certain factors can drive sudden growth.
This may lead to a period of nonconstant, or variable, growth. This
would cause the expected growth rate to increase or decrease,
thereby affecting the valuation model. For companies in such
situations, you would refer to the variable, or nonconstant, growth
model for the valuation of the company’s stock.
Consider the case of Portman Industries:
Portman Industries just paid a dividend of $2.40 per share. The
company expects the coming year to be very profitable, and its
dividend is expected to grow by 12.00% over the next year. After
the next year, though, Portman’s dividend is expected to grow at a
constant rate of 2.40% per year. (Note: Do not round your
intermediate calculations.)
Term
Value
The risk-free rate (rRFrRF) is 3.00%, the market risk premium
(RPMRPM) is 3.60%, and Portman’s beta is 1.70.
Assuming that the market is in equilibrium, use the information
just given to complete the table.
What is the expected dividend yield for Portman’s stock
today?
7.16%
5.38%
6.72%
6.56%
Now let’s apply the results of your calculations to the
following situation:
Portman has 1,000,000 shares outstanding, and Judy Davis, an
investor, holds 15,000 shares at the current price (computed
above). Suppose Portman is considering issuing 125,000 new shares
at a price of $34.00 per share. If the new shares are sold to
outside investors, by how much will Judy’s investment in Portman
Industries be diluted on a per-share basis?
$0.82 per share
$0.57 per share
$0.67 per share
$1.41 per share
Thus, Judy’s investment will be diluted, and Judy will
experience a total (profit/loss)
of ? .
This may lead to a period of nonconstant, or variable, growth. This
would cause the expected growth rate to increase or decrease,
thereby affecting the valuation model. For companies in such
situations, you would refer to the variable, or nonconstant, growth
model for the valuation of the company’s stock.
Consider the case of Portman Industries:
Portman Industries just paid a dividend of $2.40 per share. The
company expects the coming year to be very profitable, and its
dividend is expected to grow by 12.00% over the next year. After
the next year, though, Portman’s dividend is expected to grow at a
constant rate of 2.40% per year. (Note: Do not round your
intermediate calculations.)
Term
Value
The risk-free rate (rRFrRF) is 3.00%, the market risk premium
(RPMRPM) is 3.60%, and Portman’s beta is 1.70.
Assuming that the market is in equilibrium, use the information
just given to complete the table.
What is the expected dividend yield for Portman’s stock
today?
7.16%
5.38%
6.72%
6.56%
Now let’s apply the results of your calculations to the
following situation:
Portman has 1,000,000 shares outstanding, and Judy Davis, an
investor, holds 15,000 shares at the current price (computed
above). Suppose Portman is considering issuing 125,000 new shares
at a price of $34.00 per share. If the new shares are sold to
outside investors, by how much will Judy’s investment in Portman
Industries be diluted on a per-share basis?
$0.82 per share
$0.57 per share
$0.67 per share
$1.41 per share
Thus, Judy’s investment will be diluted, and Judy will
experience a total (profit/loss)
of ? .