Valuation of constant growth stock

Assignment Help Financial Management

Reference no: EM131619102

Valuation of a constant growth stock

Investors require a 16% rate of return on Levine Company's stock (i.e., rs = 16%).

What is its value if the previous dividend was D0 = $4.00 and investors expect dividends to grow at a constant annual rate of (1) -6%, (2) 0%, (3) 4%, or (4) 13%? Do not round intermediate calculations. Round your answers to two decimal places.

These 1-4 below needs to be solved.

(1) $

(2) $

(3) $

(4) $

Using data from part a, what would the Gordon (constant growth) model value be if the required rate of return was 15% and the expected growth rate were (1) 15% or (2) 20%? Are these reasonable results?

1) The results show that the formula does not make sense if the required rate of return is equal to or greater than the expected growth rate.

2) The results show that the formula makes sense if the required rate of return is equal to or less than the expected growth rate.

3) The results show that the formula makes sense if the required rate of return is equal to or greater than the expected growth rate.

4) These results show that the formula does not make sense if the expected growth rate is equal to or less than the required rate of return.

5) The results show that the formula does not make sense if the required rate of return is equal to or less than the expected growth rate.

-Select- correct answer above 1-5

1) Is it reasonable to think that a constant growth stock could have g > rs?

2) It is not reasonable for a firm to grow indefinitely at a rate lower than its required return.

3) It is not reasonable for a firm to grow indefinitely at a rate equal to its required return.

4) It is not reasonable for a firm to grow indefinitely at a rate higher than its required return.

5) It is reasonable for a firm to grow indefinitely at a rate higher than its required return.

6) It is not reasonable for a firm to grow even for a short period of time at a rate higher than its required return.

Reference no: EM131619102

Questions Cloud

What role does social media play in social constructionism : How do we create our own realities - Is it OK that everyone''s reality just a bit different - What role does social media play in social constructionism?

Expected dividend per share for each of next five years : The dividend is expected to grow 9% a year for next 3 years and then at 5% year thereafter. What is the expected dividend per share for each of the next 5 years

Discuss realistic to be considered a story : Suppose that someone has told you that Tim O'Brien's The Things They Carried is too detailed and realistic to be considered a story.

Calculate the amounts for a par who bills medicare : Explain how reimbursement differs between PAR and nonPar charges.Calculate the following amounts for a PAR who bills Medicare.

Valuation of constant growth stock : What is its value if the previous dividend was D0 = $4.00 and investors expect dividends to grow at a constant annual rate of (1) -6%,

What is the purpose of researched argument essay : What is the purpose of this essay. What does it do to meet that purpose. How effective is the argument

What kind of opinion should auditors express in each case : Various Reporting Situations. Assume that the auditors encountered the following separate situations when deciding on the report to issue for the current-year.

Create an operating budget for the strategic management plan : Create an operating budget for the Strategic Management Plan. So far we looked at marketing, human resources, and operations/supply chain management.

Expanding rapidly-currently needs to retain all of earnings : Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; what is the value of the stock today?

User Account

All Pages