Reference no: EM131047267
Nonconstant growth dividend model
The Fleming Corporation anticipates a nonconstant growth pattern for dividends. Dividends at the end of year 1 are $2 per share and are expected to grow by 16 percent per year until the end of year 5 (that’s four years of growth). After year 5, dividends are expected to grow at 6 percent as far as the company can see into the future. All dividends are to be discounted back to the present at a 10 percent rate (Ke = 10 percent).
a. Project dividends for years 1 through 5 (the first year is already given as $2). Round all values that you compute to two places to the right of the decimal point throughout this problem.
b. Find the present value of the dividends in part a.
c. Project the dividend for the sixth year (D6).
d. Use Formula 7–5 on page 168 to find the present value of all future dividends, beginning with the sixth year’s dividend. The present value you find will be at the end of the fifth year. Use Formula 7–5 as follows: P5 = D6/(Ke – g).
e. Discount back the value found in part d for five years at 10 percent.
f. Add together the values from parts b and e to determine the present value of the stock.
g. Explain how the two elements in part f go together to provide the present value of the stock.
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Coupon bond outstanding
: Roadside Markets has a 6.75 percent coupon bond outstanding that matures in 10.5 years. The bond pays interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 7.2 percent? (Please show work)
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New homes has a bond issue with a coupon rate
: New Homes has a bond issue with a coupon rate of 5.5 percent that matures in 8.5 years. The bonds have a par value of $1,000 and a market price of $972. Interest is paid semiannually. What is the yield to maturity?
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Cash flow data-what is the projects irr
: Simms Corp. is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC or negative, in both cases it will be rejected.
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Nonconstant growth dividend model
: Rework problem 11 with a new assumption—that dividends at the end of the first year are $1.60 and that they will grow at 18 percent per year until the end of the fifth year, at which point they will grow at 6 percent per year for the foreseeable futu..
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Anticipates nonconstant growth pattern for dividends
: The Fleming Corporation anticipates a nonconstant growth pattern for dividends. Dividends at the end of year 1 are $2 per share and are expected to grow by 16 percent per year until the end of year 5 (that’s four years of growth). Find the present va..
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What is the duration of this liability to the couple
: Ted and Alice Hansel have a son who will begin college 10 years from today. School expenses of $37,000 will need to be paid at the beginning of each of the four years that their son plans to attend college. What is the duration of this liability to t..
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Calculated from the four payments with amount
: Lisa is considering making a 6-year loan of $15,000 to Carmax Inc. To repay Lisa, Carmax will pay $500 at the end of Year 1, $2,000 at the end of Year 2, and $2,500 at the end of Year 3, plus a fixed but currently unspecified cash flow, Y, at the end..
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What is the annual total costs of post card inventory
: Cheeseburger and Taco Company purchases 12,465 boxes of cheese each year. It costs $30 to place and ship each order and $8.43 per year for each box held as inventory. The company is using Economic Order Quantity model in placing the orders. What is t..
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What is the bond''s yield to maturity
: Suppose a ten-year, $1000 bond with an 8.1% coupon rate and semiannual coupons is trading for $1,034.32. What is the bond's yield to maturity. If the bond's yield to maturity changes to 9.5% APR, what will be the bond's price?
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