Required return equal to the expected return

Assignment Help Financial Management
Reference no: EM131526940

Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $0.50 coming 3 years from today. The dividend should grow rapidly - at a rate of 65% per year - during Years 4 and 5. After Year 5, the company should grow at a constant rate of 4% per year. If the required return on the stock is 17%, what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)?

Reference no: EM131526940

Questions Cloud

What is your estimate of stock current price : What is your estimate of the stock's current price?
Cost of issuing and selling the preferred stock : The cost of issuing and selling the preferred stock is expected to be rm5 per share.preferred stock can be sold under these terms.
Charges or taxes are deducted : how much would be in the member's account after 14 years, if no charges or taxes are deducted?
Considering a cash purchase of stock of siti cake company : Nurul manufacturing is considering a cash purchase of the stock of siti cake company.during the year just completed, siti earned $4.25 per share.
Required return equal to the expected return : what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)?
What is the required rate of return on your company stock : What is the required rate of return on your company’s stock? What is the estimated value per share of your firm’s stock?
Money in case the value of the franc plummets : That is, is there some way to ensure that you won’t lose all of your money in case the value of the franc plummets?
Dealing with currency fluctuation : X in State A and Y in State B plan to enter into a contract. What can they do to avoid the impact of a fluctuation in the value of their money of account?
Takeover defenses : Little, Ltd., is a small publicly traded stock company that owns a valuable patent. What can Little do to prevent Big from succeeding?

Reviews

Write a Review

Financial Management Questions & Answers

  With all distributions in the form of dividends

Davis Inc. expects to have net income of $5,000,000 during the next year. Plato's target capital structure is 40% debt and 60% equity. The company has determined that the optimal capital budget for the coming year is $6,000,000. If Davis follows a re..

  What is the dividend yield and the capital gains yield

Normal tea companies grow at a constant rate of 5%. However, Taya's Tea Company has tested a brand new tea that will lead to significant growth. The current dividend is $3.0, but over the next two years it will grow by 25%. What is the dividend yield..

  How much money will you invest in stock

You have $100,000 to invest in a portfolio containing Stock X and Stock Y. how much money will you invest in Stock Y?

  Calculate the equal quarterly series equivalent

Calculate the equal quarterly series equivalent to the decreasing gradient series given below. Assume the interest rate is 8%.

  What is expected dividend growth rate

Calculate BMW's current stock price was utilizing the Dividend Discount Model by using the CAPM equation (rWFM=rf+RPmBWFM). find the risk-free rate of return, rf. estimate the market risk premium, RPm, What is BMW's expected dividend growth rate?

  Evaluate return on equity

Evaluate Return on Equity for the company Sprint for the last three years using the DuPont analysis. Compare the company’s results to a major competitor. Taking the information from the Income statements and the Balance sheets, calculate the company’..

  Levered value-what is firm weighted average cost of capital

A firm has a cost of debt of 7.8 percent and a cost of equity of 15.6 percent. The debt-equity ratio is .52. There are no taxes. What is the firm's weighted average cost of capital? Stevenson's Bakery is an all-equity company that has projected perpe..

  What is the expected return on the portfolio

You own a portfolio that is 26 percent invested in Stock X, 41 percent in Stock Y, and 33 percent in Stock Z. The expected returns on these three stocks are 11 percent, 14 percent, and 16 percent, respectively. What is the expected return on the port..

  Two different capital structures

Uptown construction is comparing two different capital structures. Plan i would result is 23,000 shares of stock and 320,000 in debt. Plan ii would result in 17000 shares of stock and 260,000 in debt.

  Two mutually exclusive projects offer the cash flows

Two mutually exclusive projects offer the following cash flows at year 0 and 1, Project X: -240 (year 0) and 580 (year 1), Project Y: -10,060 (year 0) and 11,010 (year 1). Calculate an incremental IRR of doing project Y and on that basis decide which..

  Cash flow-public equity market-strategic alliances

How might the size of a company affect obtaining R&D funding from the following sources: venture capital, internal cash flow, public equity market, strategic alliances? Are company stability and assets more important, and if so, for which types of so..

  What unit sales volume would income equal costs

A firm has fixed operating costs of $500,000, variable costs of $2.00 per unit produced, and its products sell for $4.00 per unit. What is the company's breakeven point, i.e., at what unit sales volume would income equal costs?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd