Purchase Solution

Zero growth valuation models

Not what you're looking for?

Ask Custom Question

In each of the following situations assume a zero-growth rate for earnings and dividends (NPVGO is zero), that all earnings are paid out as dividends, and that the earnings-based valuation model is being used.

1. Dennison Corporation's earnings are expected to be $7.00 per share and its stock price is $28.00. What is the required rate of return on the firm's equity?

2. Sampson Corporation's ernings are expected to be $5.00 per share and its required rate of return on equity is 22%. What is the current price of the stock?

3. Johnson Corporation's current stock price is $40.00 and its required rate of return on equity is 15%. What is the firm's expected earnings?

Purchase this Solution
Solution Summary

There are three short solution type problems on earning-based equity valuations. Solution to first problems explains the steps to find out required rate of return on firm's equity. Solution to second problem depicts the methodology to find out current price of the stock. Solution to third problem determines the firm's expected earnings.

Solution Preview

Solution:

1. Dennison Corporation's earnings are expected to be $7.00 per share and its stock price is $28.00. What is the required rate of return on the firm's equity?

Dividend=Expected earnings=$7
Price of stock=$28

Price of stock=Dividend/required ...

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
MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

View More Free Quizzes
Related BrainMass Solutions

  • Time Value of Money in bond market value; zero growth

    For common stock define the zero growth (dividend) model, the variable growth (dividend) model and the free cash flow valuation model. In addition to defining these models discuss at least 2 weaknesses of these models.

  • Valuing Stocks, Options and Bonds

    Valuation - preferred stock What is the value of a share of preferred stock that pays a $9.50 dividend? Assume k is 12%. 1. Valuation - zero-coupon bond A U.S.

  • Valuation Approaches-PV of Cash flow Vs Relative Valuation

    Two variables, which are equality important irrespective of the valuation approach, are growth rate in earnings and cash flows and risk. The suitable growth rate is used in cash flow models estimate the present value of growth opportunities.

  • Capital Valuation - Walmart

    The valuation models best supports finding is defended.

  • Different Valuation Models

    constant growth stocks.

  • Valuation Models: ConocoPhilips

    s=COP+Key+Statistics Annual Report 2010 Regards Jayant Kumar This solution shows how to use the capital asset pricing model (CAPM), price/earnings to growth (PEG), and dividend discount model (DDM) valuation models to justify the 2010 market price

  • constant growth Vs. multi stage growth model for valuation

    Use different models to value them. Answers a conceptual question on which valuation model is appropriate under various situations. Three models discussed are DCF models with constant growth, two stage growth and three stage growth (280 words).

  • Finance questions

    Are the valuation models for common stock with constant, zero growth dividend payments and for preferred stock very similar? Please explain. 4. How do mutually exclusive and independent investment projects differ? 5.

  • Equity Valuation Models - CAPM & CGM

    Explores strengths and limitations of both valuation models.

  • Calculating Dividends using Dividend Valuation Models

    115524 Calculating Dividends using Dividend Valuation Models According to the dividend valuation model, when the required rate of return is 10%, the constant growth rate of dividends is 4%, and the dividends at the end of the first year is $6, then the

View More Related Solutions