Purchase Solution

Value of common stock

Not what you're looking for?

Ask Custom Question

Fast Grow Corporation is expecting dividends to grow at a 20% rate for the next 2 years. The corporation just paid a $2 dividend and the next dividend will be paid 1 year from now. After 2 years of rapid growth dividends are expected to grow at a constant rate of 9% forever.

a/ If the required return is 14%, what is the value of Fast Grow Corporation common stock today?
b/ Assume the annual dividend grows at a constant rate of 9% indefinetly instead of the supernormal growth. How much is the stock worth if the dividends grow annually at 9%?

Purchase this Solution
Solution Summary

The solution explains how to determine the value of common stock

Solution Preview

a) The value is the present value of all dividends. We first calculate the dividends
D1 = 2 X 1.20 = 2.40
D2 = 2.40 X 1.20 = 2.88
D3 = 2.88 X 1.09 = 3.14
From year 3 onwards dividends grow at a ...

Purchase this Solution
Free BrainMass Quizzes
Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Motivation

This tests some key elements of major motivation theories.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

View More Free Quizzes
Related BrainMass Solutions

  • Conversion (or stock) value of convertible bonds?

    196614 Conversion (or stock) value of convertible bonds? What is the conversion (or stock) value of each of the following convertible bonds? a. A $1,000-par-value bond that is convertible into 25 shares of common stock.

  • Shikai Corporation's charter authorized issuance of 100,000 shares of $10 par value common stock and 50,000 shares of $50 preferred stock

    Fair market value of common stock = 14*375=5250 Fair market value of preferred stock = 65*100=6500 Total fair value of the stocks issued = 11750 The lump sum amount received = 11300 Amount allocated to common stock = 5250/11750*11300 = $5049 Amount

  • Calculating conversion or stock value of convertible bond.

    A $1,000-par-value bond that is convertible into 12.5 shares of common stock. The common stock is currently selling for $42 per share. c. A $1,000-par-value bond that is convertible into 100 shares of common stock.

  • Stockholders equity : explained

    (a) On March 1, DVD Co. issues 44,500 shares of $4 par value common stock for $255,000 cash. (b) On April 1, GT Co. issues no-par value common stock for $50,000 cash.

  • Present Value of Preferred Stock

    What are the cash flows associated with calculating the present value of common stock? Why is it more difficult to calculate the present value of common stock than it is to calculate the value of bonds or preferred stock?

  • ABC Corporation: Weight of Debt; weight of common stock;

    The market value of the debt is 80% of the book value, the market value of preferred stock is 70% of book value, and the market value of common stock is 130% of book value.

  • Prepare Journal Entries: Issuance, Common & Purchase Stock

    Preferred Stock $166,400 Paid-in Capital in Excess of Par Value-Preferred Stock 20,710 Common Stock 2,129,000 Paid-in Capital in Excess of Stated Value-Common Stock 1,724,500 Treasury Stock-Common (5,550 shares) 61,050 Retained Earnings 82,400

  • Hayslett Corp

    Paid in capital in excess of stated value common stock 30,000 (10,000 x $2 = $20,000) Sept. 1 Cash 30,000 Common Stock 10,000 Paid in capital in excess of stated value common stock 20,000 (5,000 x $2 = $10,000)

  • Jajoo Corp. - Journal Entries

    Preferred Stock (10%,$100 par noncumulative, 5,000 shares authorized)=$300,000 Common Stock ($5 stated value, 300,000 shares authorized)=$1,000,000 Paid in capital in excess of par value preferred stock=$20,000 Paid in capital in excess of stated value

  • Recording the Issuance of Common and Preferred Stock

    It is authorized to issue 10,000 shares of 8%, $100 par value preferred stock, and 500,000 shares of no par common stock with a stated value of $1 per share. The following stock transactions were completed during the first year.

View More Related Solutions