Variable growth version of the dividend valuation model

Assignment Help Financial Econometrics

Reference no: EM131990461

Assume? you've generated the following information about the stock of? Bufford's Burger? Barns: The? company's latest dividends of ?$4.15 a share are expected to grow to $4.61 next? year, to $5.12 the year after? that, and to $5.68 in year 3. After? that, you think dividends will grow at a constant 4?% rate.

a. Use the variable growth version of the dividend valuation model and a required return of 15% to find the value of the stock.

b. Suppose you plan to hold the stock for three? years, selling it immediately after receiving the ?$5.68 dividend. What is the? stock's expected selling price at that? time? As in part (a?), assume a required return of15%

c. Imagine that you buy the stock today paying a price equal to the value that you calculated in part ?(a?).You hold the stock for three? years, receiving dividends as described above. Immediately after receiving the third? dividend, you sell the stock at the price calculated in part ?(b?). Use the IRR approach to calculate the expected return on the stock over three years. Could you have guessed what the answer would be before doing the? calculation?

d. Suppose the? stock's current market price is actually $45.92. Based on your analysis from part?(a?), is the stock overvalued or? undervalued?

e. A friend of yours agrees with your projections of? Bufford's future? dividends, but he believes that in three? years, just after the company pays the ?$5.68 dividend, the stock will be selling in the market for ?$55.10. Given that? belief, along with the? stock's current market price from part ?(d?), calculate the return that your friend expects to earn on the stock over the next three years.

Reference no: EM131990461

Questions Cloud

Calculate the net income of your client : Calculate the net income of your client, given that she is single and does not have dependent. Investigate the historical housing price data for Sydney

Discuss the significant attributes of a wiki : Discuss the significant attributes of a wiki, and describe the overall manner in which IAL uses wikis for its internal collaboration.

Describe the key pieces of the information needed : Describe the key pieces of the information needed. Write the paper as if they are instructions for a new employee. What should go into Box?

Explore how organizations use business process management : Explore how organizations use business process management (BPM). Write a one-page (250-word) paper explaining how organizations use business process management.

Variable growth version of the dividend valuation model : Use the variable growth version of the dividend valuation model and a required return of 15% to find the value of the stock.

Compare the difference between a male and female manager : Compare and contrast the difference between a male and female manager and/or leader. Using the four characteristics you chose, evaluate how one gender.

Calculate the cost of issuing preferred shares : The stock brokerage firm charges $5 per share to issue the stock. Calculate the cost of issuing preferred shares?

What is pci-dss compliance : What is PCI-DSS Compliance? Why was Card Data Systems not PCI-DSS Compliant based on your definition?

How much is the stock currently over or under priced : Based on a three-year investment horizon and assuming that all your estimates are correct, how much is the stock currently over or under priced?

User Account

All Pages