Calculate the expected dividend yield, Financial Accounting

Assignment Help:

Assume that it is now January 1, 2012. XYZ Inc. has developed a solar panel capable of generating 200% more electricity than any other solar panel currently on the market. As a result, XYZ is expected to experience a 15% annual growth rate for the next 5 years. Other firms will have developed comparable technology at the end of 5 years, and XYZ's growth rate will slow to 5% per year indefinitely. Stockholders require a return of 12% on XYZ's stock. The most recent annual dividend (D0), which was paid yesterday, was $1.75 per share.

a. Calculate XYZ'S expected dividends for 2012, 2013, 2014, 2015, and 2016.

b. Calculate the value of the stock today, p^0. Proceed by finding the present value of the dividends expected at the end of 2012,2013,2014,2015, and 2016 plus the percent value of the stock price that should exist at the end of 2016. The year-end 2016 stock price can be found by using the constant growth equation. Notice that to find the December 31, 2016, price, you must use the dividend expected in 2017, which is 5% greater than the 2016 dividend. 

c. Calculate the expected dividend yield (D1/P0), capital gains yield, and total return (dividend yield plus capital gains yield) expected for 2012. (Assume that P^0=P0 and recognize that the capital gains yield is equal to the total return minus the dividend yield.) Then calculate these same three yields for 2017.

d. How might an investor's tax situation affect his or her decision to purchase stocks of companies in the early stages of their lives, when they are growing rapidly, versus stocks of older, more mature firms? When does XYZ's stock become "mature" for purposes of this question?

e. Suppose your boss tells you she believes that XYZ's annual growth rate will be only 12% during the next five years and the firm's long-run growth rate will be only 4%. Without doing any calculations, what general effect would these growth rate changes have on the price of XYZ's stock?

f. Suppose your boss also tells you that she regards XYZ as being quite risky and that she believes the required rate of return should be 14%, not 12%. Without doing any calculations, determine how the higher required rate of return would affect the price of the stock, the capital gains yield, and the dividend yield. Again, assume that the long run growth rate is 4%.


Related Discussions:- Calculate the expected dividend yield

What is capital expenditure, Calculat capital expenditure, How to define Ca...

Calculat capital expenditure, How to define Capital expenditure This is kind of expenditure on fixed assets like as plant or equipment, the cost of which is spread over several

What net carrying amount, On June 30, 2011, Omara Co. had outstanding 8%, $...

On June 30, 2011, Omara Co. had outstanding 8%, $3,000,000 face amount, 15-year bonds maturing on June 30, 2021. Interest is payable on June 30 and December 31. The unamortized bal

Errors in financial statements, Errors in Financial Statements The follo...

Errors in Financial Statements The following financial statements are available for Sherwood Real Estate Company: Balance Sheet Assets Liabilities Cash . . . . . . . . . . .

Compute basic and diluted earnings per share, The following information was...

The following information was taken from the books and records of Ludwick, Inc.: 1. Net income $ 280,000 2. Capital structure: a. Convertible 6% bonds. Each of the 300, $1,000 bond

Trustees remuneration-trusts laws and accounts, Trustees remuneration A...

Trustees remuneration A trustee may not receive remuneration except: 1. By order of the court, if the trust is very onerous or the services of the trustee very valuable;

Us gaap, US GAAP follows the Historical Cost Concept in valuing the cost of...

US GAAP follows the Historical Cost Concept in valuing the cost of Long-Term Assets. Explain this principle and how it compares to the standards used in the reporting of Long-Term

Cost of capital calculation, Cost of capital calculation Cost of equit...

Cost of capital calculation Cost of equity (Ke) Using the dividend valuation model, Ke=D 1 /P 0 + g Pretentious that dividend growth over the last five years is a good

What is the value of debt and equilty, Steinberg Corporation and Dietrich C...

Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more levered. Both companies will remain in business for one more year. The companies' ec

What is asset, Q. What is Asset? Asset - An economic resource which is ...

Q. What is Asset? Asset - An economic resource which is expected to be of benefit in the future. Probable futureeconomic benefits attained as a result of past transactions or e

Write Your Message!

Captcha
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