Question: Runyon Industries is expected to enjoy a very rapid growth rate in dividends of 30 percent a year for the next 3 years. This growth

Runyon Industries is expected to enjoy a very rapid growth rate in dividends of 30 percent a year for the next 3 years. This growth rate is then expected to slow to 20 percent a year for the next 5 years. After that time, the growth rate is expected to be 6 percent a year. D₀ is $2. The beta for this stock is 1.5. The expected return on the market is 11 percent, and the risk-free rate is 5 percent. The required rate of return is 20 percent. What is the estimated price of the stock?

Step by Step Solution

★★★★★

3.28 Rating (154 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

This is a three stage growth model It is unusual in ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

650-B-A-I (7432).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

Swanton Industries is expected to pay a dividend of $10 per year for 10 years and then increase the dividend to $15 per share for every year thereafter. The required rate of return on this stock is...

On January 1, 20X1, International Copy Machines (ICOM), one of the favorites of the stock market, was priced at $300 per share. This price was based on an expected dividend at the end of the year of...

Which of the following is closest to Raes estimate of the stocks value? A. $ 10.08 B. $ 10.54 C. $ 10.62 Jacob Daniel is the chief investment officer at a U.S. pension fund sponsor and Steven Rae is...

Peterson Corporation is expected to enjoy a very rapid growth rate in dividends of 30 percent a year for the next three years. This growth rate is then expected to slow to 20 percent a year for the...

Runyon Industries is expected to enjoy a very rapid growth rate in dividends of 30 percent a year for the next 4 years. This growth rate is then expected to slow to 20 percent a year for the next 5...

Runyon Industries is expected to enjoy a very rapid growth rate in dividends of 30 percent a year for the next three years. This growth rate is then expected to slow to 20 percent a year for the next...

Q4: Runyon Industries is expected to enjoy a very rapid growth rate in dividends of 30 percent a year for the next three years. This growth rate is then expected to slow to 20 percent a year for the...

ABC Industries is expected to enjoy a very rapid growth rate in dividends of 30 percent a year for the next 3 years. This growth rate is then expected to slow to 20 percent a year for the next 5...

PLEASE ANSWER QUICKLY... MULTIPLE CHOICE Peterson Corporation is expected to enjoy a very rapid growth rate in dividends of 30 percent a year for the next three years. This growth rate is then...

Calculate the WACC Debt 10,000,000 Equity 2,000,000 Rd 6.75% Re 18% T 32% Explain how the back plow ratio could affect the WACC and companies a over the medium term ( a short essay)

Income statements and balance sheets follow for Snap-On Incorporated. Refer to these financial statements to answer the following questions. a. Compute net operating profit after tax (NOPAT) for 2016...

16.69 Bootstrap confidence interval for the difference in proportions.We want a 95% confidence interval for the difference in the proportions of reduced blood pressure between a population of black...

What is the difference between an internal auditor and external auditor?

Review the Dell case at the beginning of the chapter and then discuss the compet i tive advantages that Barnes & Noble would have over a small bookshop. What advantages does a small bookshop have?

Give two examples of service firms that work with other channel specialists to sell their products to final consumers. What marketing functions is the specialist providing in each case?

Discuss some reasons why a firm that produces installations might use direct distribution in its domestic market but use intermediaries to reach overseas customers.

The Matterhorn Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (I) Cash Flow (II) 0 $ 81,000 $ 39,000 1 31,500 13,500 2 41,000 28,500 3...

Special Agent Dale Cooper is evaluating option strategies that will allow him to profit from large moves in a stocks price, either up or down. He believes that a combination of 2 long put options and...

Use the stock prices and all option prices of alphabet (google) as of a closing price on either June 19, 20 or 21st. Please identify in your response which day you picked for your closing prices....