1. Heleveton, Inc. currently pays a dividend of $1.20 per share. Dividends are expected to increase...

 

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1. Heleveton, Inc. currently pays a dividend of $1.20 per share. Dividends are expected to increase at the rate of $0.10 per share for the next eight years. Determine the current value of Heleveton's common stock to an investor who expects to be able to sell the stock for $28 after 5 years. Assume that the investor requires a 12 percent rate of return on the security. 2. You are an analyst studying Beranek Technologies, which was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management team has indicated that it plans to pay a $0.50 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Your forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of Beranek's current intrinsic value? 4 Year 0 1 2 3 Growth rate NA 50.00% Dividend $0.00 $0.00 $0.00 $0.50 $0.75 Zero current div, non-constant then constant growth Required return 11% 5 6 7 25.00% 8.00% 8.00% $0.94 $1.01 $1.09 1. Heleveton, Inc. currently pays a dividend of $1.20 per share. Dividends are expected to increase at the rate of $0.10 per share for the next eight years. Determine the current value of Heleveton's common stock to an investor who expects to be able to sell the stock for $28 after 5 years. Assume that the investor requires a 12 percent rate of return on the security. 2. You are an analyst studying Beranek Technologies, which was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management team has indicated that it plans to pay a $0.50 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Your forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of Beranek's current intrinsic value? 4 Year 0 1 2 3 Growth rate NA 50.00% Dividend $0.00 $0.00 $0.00 $0.50 $0.75 Zero current div, non-constant then constant growth Required return 11% 5 6 7 25.00% 8.00% 8.00% $0.94 $1.01 $1.09

Answer rating: 100% (QA)

SOLUTION 1 To calculate the current value of Helevetons common stock we can use the dividend discount model PV D r g where PV is the present value of ... View the full answer