Purchase Solution

Estimating the current value of given stock

Not what you're looking for?

Ask Custom Question

Currently a firm is earning $3.80 per share (EPS=$3.80)and has a dividend payout ratio of 70% today and in the foreseeable future. Starting next year EPS is expected to grow by 30% for three years and 20% for the next three years. Starting in year seven the EPS growth rate will gradually decline over three years to 8% and stay at 8% thereafter.

What is the most you would be willing to pay for a share if the firm requires an 18.00% rate of return?

Purchase this Solution
Solution Summary

The solution estimates the current value of given stock.

Solution Preview

See attached file for format and formulas.

Year End Growth rate Dividend Stock's value Total Cash Flow Required rate PV
n g Dn at the end of 7th year of return, r
Dn-1*(1+g)
0 2.6600
1 ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution
Free BrainMass Quizzes
Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Motivation

This tests some key elements of major motivation theories.

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Operations Management

This quiz tests a student's knowledge about Operations Management

View More Free Quizzes
Related BrainMass Solutions

  • Estimating the Current Value of a Given Stock

    419648 Estimating the Current Value of a Given Stock Nachman Industries just paid a dividend of D0 = $1.32. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter.

  • Estimating the current price of given stock

    443588 Estimating the current price of given stock Trend-Line Inc. has been growing at a rate of 6% per year and is expected to continue to do so indefinitely. The next dividend is expected to be $5 per share. a.

  • Estimating the return on the given stock

    509200 Estimating return on given stock You have the following information for Starbucks: Current EPS is $1.79. The current dividend is $.68 per share. The return on equity is 24%. The current price is $49.22. Hint: Get the payout rate. a.

  • Stock's current intrinsic value

    The required return on WWW's stock is 9.00%. What is the best estimate of the stock's current intrinsic value?

  • Estimating the current price of BB stock

    391202 Estimating the Current Price of BB Stock BB Company pays a dividend of $4.00 The dividend expected growth rate for the three coming years : 6% After the three years : 4% The expected beta for BB stock 1.2 The risk free rate 3.00% The market

  • Weighted Average Cost of Capital (WACC) explained in this solution

    For DCF approach we need the value of the current dividend (dividend just paid) as well as current stock price.

  • Cost of Capital

    Use the same period average long term tibill rate. This is because the current period t-bill rate may be influenced due to current inflation rates. 3. Do not use the book value of sources of capital in the WACC, use the market value.

  • Estimating Factors for a Valuation Model

    552498 Estimating Factors for a Valuation Model The value of an asset is the present value of the expected returns from the asset during the holding period.

  • WACC and leveraged returns

    273835 Estimating WACC and Leveraged Returns: Eschevarria Example I am in need of help with these two. (Estimating the WACC with three sources of capital) Eschevarria Research has the capital structure given here.

View More Related Solutions