What is the current price of hubbard common stock

Assignment Help Financial Management
Reference no: EM131898777

Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.20. It expects to grow at a constant rate of 4% per year. If investors require a 10% return on equity, what is the current price of Hubbard's common stock? Round your answer to the nearest cent. Do not round intermediate calculations.

$ per share

Zero Growth Stocks:

The constant growth model is sufficiently general to handle the case of a zero growth stock, where the dividend is expected to remain constant over time. In this situation, the equation is:

Note that this is the same equation developed in Chapter 5 to value a perpetuity, and it is the same equation used to value a perpetual preferred stock that entitles its owners to regular, fixed dividend payments in perpetuity. The valuation equation is simply the current dividend divided by the required rate of return.

Quantitative Problem 2: Carlysle Corporation has perpetual preferred stock outstanding that pays a constant annual dividend of $1.70 at the end of each year. If investors require an 7% return on the preferred stock, what is the price of the firm's perpetual preferred stock? Round your answer to the nearest cent. Do not round intermediate calculations.

$ per share

Nonconstant Growth Stocks:

For many companies, it is not appropriate to assume that dividends will grow at a constant rate. Most firms go through life cycles where they experience different growth rates during different parts of the cycle. For valuing these firms, the generalized valuation and the constant growth equations are combined to arrive at the nonconstant growth valuation equation:

Basically, this equation calculates the present value of dividends received during the nonconstant growth period and the present value of the stock's horizon value, which is the value at the horizon date of all dividends expected thereafter.

Quantitative Problem 3: Assume today is December 31, 2013. Imagine Works Inc. just paid a dividend of $1.35 per share at the end of 2013. The dividend is expected to grow at 15% per year for 3 years, after which time it is expected to grow at a constant rate of 5.5% annually. The company's cost of equity (rs) is 9%. Using the dividend growth model (allowing for nonconstant growth), what should be the price of the company's stock today (December 31, 2013)? Round your answer to the nearest cent. Do not round intermediate calculations.

$ per share

Reference no: EM131898777

Questions Cloud

Historical record-risk and potential reward are inversely : Which of the following statements are true based on the historical record for 1926-2013? Risk and potential reward are inversely related
Spot and forward canadian dollar prices of us dollar : What are the spot and forward Canadian Dollar prices of the US Dollar?
Calculate npv using replacement chains to compare projects : Destination Hotels currently owns older hotel on best beachfront property on Hilton Head? Island, Calculate NPV using replacement chains to compare projects.
Fred database to create indexes and calculations annualized : Use data from the Federal Reserve Bank of St. Louis FRED database to create indexes and calculations annualized 1-, 3-, 5-,
What is the current price of hubbard common stock : If investors require a 10% return on equity, what is the current price of Hubbard's common stock?
Compensation is tradeoff that exists between efficiency risk : The essence of the principal-agent problem when discussing managerial compensation is the tradeoff that exists between efficiency and risk.
CAPM-generated expectations of performance : explain how each stock in the portfolio performed relative to those CAPM-generated expectations of performance. What factors could explain these differences?
New service to cuba two competitors are delta and jet blue : Make sure to select ratios that you think would be impacted by starting new service to Cuba two competitors are delta and jet blue
Determined using actual and actual convention : Accrued interest is determined using actual/actual convention. How much must Mary pay for the bond?

Reviews

Write a Review

Financial Management Questions & Answers

  The efficient market hypothesis do you think exists

What form, if any, of the Efficient Market Hypothesis do you think exists?

  What is the internal rate of return on the investment

The company depreciates its assets on a straight-line basis and has a marginal tax rate of 40 percent. What is the internal rate of return on this investment?

  What is the yield to maturity for the two-year bond

Based on the above information, what is the yield to maturity for the two-year bond if held to maturity?

  How rebecca can maintain her current cash flow

Suppose the company does convert to the new capital structure. Show how Rebecca can maintain her current cash flow.

  Discuss the impact of a rise in interest on bonds and shares

Discuss the impact of a rise in interest on bonds and shares. What are the other two costs and two benefits of debt financing besides the tax shield?

  What is current bond price

Great Wall Pizzeria issued 6-year bonds one year ago at a coupon rate of 6.3 percent. what is the current bond price?

  Calculate the debt yield ratio

If the expected purchase price of the property is $1,250,000 and you are planning on making a 20% down payment, calculate the debt yield ratio.

  Expected to grow at a constant rate

Assume that the average firm in your company's industry is expected to grow at a constant rate of 6% and that its dividend yield is 8%. Your company is about as risky as the average firm in the industry, but it has just successfully completed some R&..

  Calculate your return on investment one year later

Suppose you purchase 1,050 shares of stock at $76 per share with an initial cash investment of $30,000. The call money rate is 5 percent and you are charged a 1.5 percent premium over this rate. Calculate your return on investment one year later if t..

  Evaluating an extra dividend versus share repurchase

Galles Corporation is evaluating an extra dividend versus a share repurchase. What will the company's EPS and P/E ratio be under the two different scenarios?

  Acquaint with financial markets products and services

After getting acquaint with financial markets products and services, discuss should Moonn make her investment decision based on her advisor above clarifications

  What is the current market price of bonds

The current market rate of interest on the Bright Sun bonds is 8.67 percent. What is the current market price (intrinsic value) of the bonds?

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