What will be the stock new expected future capital return

Assignment Help Financial Accounting
Reference no: EM132751301

A fairly priced unlevered firm plans to pay a dividend of $9 next year (t=1) which is expected to grow by 2.5% pa every year after that forever. This dividend growth rate is the stock's capital return. The firm's required return on equity is 10% pa. The firm can be valued using the dividend discount model.

  • The firm is thinking about decreasing its future dividend payments by 25% to finance more zero-NPV research and development projects which are expected to return 10% pa, and have the same risk as the existing projects. Therefore, next year's dividend will be $6.75.

Problem 1: What will be the stock's new expected future capital return per annum (proportional increase in price per year) if the change in payout policy goes ahead? Assume that payout policy is irrelevant to firm value and that all rates are effective annual rates. The new expected capital return will be:

Select one:

a. 1.875% pa
b. 2.5% pa
c. 3.125% pa
d. 4.375% pa
e. 4.8125% pa

Reference no: EM132751301

Questions Cloud

Why is the loop not sterilized : Why is the loop not sterilized immediately before picking up the bacterial sample?
Discuss the ethical issues that can arise in contracting : Discuss the ethical issues that can arise in contracting. Describe the risks and responsibilities in the contractor-customer relationship.
How do determine what is the expected return on a portfolio : What is the expected return on a portfolio composed of 30 percent of security FGand 70 percent of security ? (Do not round the intermediate calculations.)
Architecture design of system : Discuss the types of cultural and political requirements and how they influence the architecture design of a system, especially if used globally.
What will be the stock new expected future capital return : What will be the stock's new expected future capital return per annum (proportional increase in price per year) if the change in payout policy goes ahead?
Primary functional components of software application : List and describe the four primary functional components of a software application, and the three primary hardware components.
What is the benefit-cost ratio of investment : What is the Benefit-Cost Ratio (Profitability Index) of this investment? The company's executives require a 12% return on all investments.
Effective client-reflective practice and supervision : Describe the article and how it relates to Effective Client/Reflective Practice and Supervision
Explain different screening practice and provide feedback : Respond to at least one colleagues who recommended a different screening/assessment practice and provide feedback. According to Hunsley & Mash, the challenge.

Reviews

Write a Review

Financial Accounting Questions & Answers

  What is the carrying value of available for sale investment

Peter Senen Company invests P3,000,000 in abound. What is the carrying value of the available for sale investment on October 1, 2020?

  Record the purchase of the treasury stock

Record the issuance of the common stock during 20X7. Determine retained earnings on 12/31/X7. Record the purchase of the treasury stock.

  What the employer balance sheet is most likely to present

Defined benefit pension plan and a defined contribution pension plan. The employer's balance sheet is most likely to present an asset or liability related to

  Amount and character of winchesters gains and losses

Winchester LLC sold the following business assets during the current year: automobile, $30,000 cost basis, $12,000 depreciation, proceeds $20,000; What is the amount and character of Winchester's gains and losses before the 1231 netting process?

  What is the Z score for ABC Company

What is the Z score for ABC Company according to Altman's linear discriminant model based on the key financial ratios from last year's financial statements.

  What would the dollar price of the car be now

What would the dollar price of the car be now, assuming the car's price changes only with exchange rates? In 1983, the Japanese yen-U.S. dollar exchange rate.

  How much should be repaid by jel limited on the due date

PAK Limited borrowed a loan $1,000,000 for 30 years, the annual repayment amount is $124,143.4. What interest rate is he being charged?

  View in the statement of cash flows and the ratios

Max Points: 5.0 choose a publicly traded company, and review its statement of cash flows. Provide a link to the statement in your post. Do not choose a company about which one of your classmates has already posted. Calculate the cash flow ratios pres..

  Characteristics of both a variable cost and a fixed cost

If sales are $500,000, variable costs are $200,000 and fixed costs are $240,000, what is the contribution margin ratio? A cost that has characteristics of both a variable cost and a fixed cost is called a:

  Identify three typesconditions to be satisfied for revenue

Identify three typesconditions to be satisfied for revenue from the sale of goods to be recognised according to AASB 118/IAS 18 Revenue

  Make a cash budget for october and november

Make a cash budget for October, November, and December? (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign)

  Determine the cost of checking account deposits

Why might an advertising agency use job costing for an advertising campaign by Pepsi, whereas a bank might use process costing to determine the cost of checking account deposits? How are these approaches similar? What importance to these results make..

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