🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →

HomeClass Notes1,200,000CA670,000

ECON 4400 Lecture Notes - Preferred Stock, Dividend Yield

55 views4 pages

periwinklesardine18

18 Jun 2014

School

York University

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

9. (lo1) this stock has a constant growth rate of dividends, but the required return changes twice. To find the value of the stock today, we will begin by finding the price of the stock at year 6, when both the dividend growth rate and the required return are stable forever. The price of the stock in year 6 will be the dividend in. Year 7, divided by the required return minus the growth rate in dividends. P6 = d6 (1 + g) / (r g) = d0 (1 + g)7 / (r g) = . 50 (1. 05)7 / (. 10 . 05) = . 50. Now we can find the price of the stock in year 3. We need to find the price here since the required return changes at that time. The price of the stock in year 3 is the pv of the dividends in years 4, 5, and 6, plus the. Pv of the stock price in year 6.

Related Documents

ECON 4400 Lecture Notes - Dividend Yield, Ratia, Volvo B4B Engine

periwinklesardine18

ECON 4400 Lecture : CHAPTER 8.docx part 1.docx

periwinklesardine18

ECON 4400 Midterm: Midterm_Fall2004.pdf

pucewildebeest131

Related Questions

Assume XYZ stockÃ¢â¬â¢s last dividend was $3. The dividend growth rate is expected to be constant at 5% for 3 years, after which dividends are expected to grow at a rate of 6% forever. XYZÃ¢â¬â¢s required return (rs) is 10%.

What is XYZÃ¢â¬â¢s stock price today?

abc inc. pays dividends annually. the expected dividend payment in year five is $2. the growth rate, which is currently 10%, is expected to decline linearly over ten years, between year 5 and year 15, to a stable rate of 5% thereafter. the required return is ten percent. calculate the current stock price

greyprairie-dog803

d. TTC recently introduced a new line of products that has been wildly successful. On the basis of this

success and anticipated future success, the following free cash flows were projected:

FCF (in millions)

After the 10th year, TTC's financial planners anticipate that its free cash flow will grow at a constant rate

of 6%. Also, the firm concluded that the new product caused the WACC to fall to 9%. The market value

of TTC's debt is $1,200 million, it uses no preferred stock, and there are 20 million shares of common

stock outstanding. Use the corporate valuation model approach to value the stock.

INPUT DATA: (Dollars in Millions)

Millions of shares

PV of FCF_1-10 =

HV at Year 10 of FCF after Year 10 = FCF₁₁/(WACC â g_n):

PV of HV at Year 0 = HV/(1+WACC)¹⁰:

Sum = Value of the Total Corporation

Less: MV of Debt and Preferred

Value of Common Equity

Number of Shares (in Millions) to Divide By:

Value per Share = Value of Common Equity/No. Shares:

using the discounted

The price as estimated by the corporate valuation method differs from the discounted dividends method because

different assumptions are built into the two situations. If we had projected financial statements, found both

dividends and free cash flow from those projected statements, and applied the two methods, then the

prices produced would have been identical. As it stands, though, the two prices were based on somewhat

different assumptions, hence different prices were obtained. Note especially that in the FCF model we

assumed a WACC of 9% versus a cost of equity of 10% for the discounted dividend model. That would obviously tend to

raise the price.

aquamarineprairie-dog413