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Stock Valuation

1. If you bought a share of common stock, you would probably expect to receive dividends plus an eventual capital gain. Would the distribution between the dividend yield and the capital gain yield be influenced by the firm's decision to pay more dividends rather than to retain and reinvest more of its earnings? Explain.

2. Corporate value model - Smith Technologies is expected to generate $150 million in free cash flow next year, and FCF is expected to grow at a constant rate of 5 percent per year indefinitely. Smith has no debt or preferred stock, and its WACC is 10 percent. If Smith has 50 million shares of stock outstanding, what is the stocks value per share?

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1 If you bought a share of common stock, you would probably expect to receive dividends plus an eventual capital gain. Would the distribution between the dividend yield and the capital gain yield be influenced by the firm's decision to pay more dividends rather than to retain and reinvest more of its earnings? Explain.

A firm can either retain or payout earnings. Dividends ...

Solution Summary

Answers to 2 questions on stock valuation

$2.19