a. A company will pay a total dividend of $3,800. The dividend will be increased by 8% for two years and will then reduc
Posted: Fri Jul 01, 2022 7:52 am
a. A company will pay a total dividend of $3,800. The dividendwill be increased by 8% for two years and will then reduce itsdividend growth rate by 2 percentage points per year until itreaches the industry average of 2 percent dividend growth, afterwhich the company will keep a constant growth rate forever. Themarket value of the company’s debt is $20,000 and its book value is$18,000. The number of shares is 3,700. Assume that cost of debt is3%, the tax rate is 39%, and the cost of equity is 10.4%.
i. What is the fair value of the company stock price?
ii. Your friend expects that the company will maintain a payoutratio of 26% and a profit margin of 38%, and the stock can be soldat 3x price-to-sales ratio after five years (right after the fifthdividend is paid). What is the maximum price that your friend iswilling to purchase the stock today?
i. What is the fair value of the company stock price?
ii. Your friend expects that the company will maintain a payoutratio of 26% and a profit margin of 38%, and the stock can be soldat 3x price-to-sales ratio after five years (right after the fifthdividend is paid). What is the maximum price that your friend iswilling to purchase the stock today?