Apply It$-$ Ch $07$ Assignment $-$ Corporate Valuation and Stock Valuation

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Portman Industries just paid a dividend of $$1,44$ per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by $16\mathrm{.}00\%$ over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of $3\mathrm{.}20\%$ per year.

$($Note: Do not round your intermediate calculations.$)$

Value

$($Note: Rounded to four decimal places$)$

$($Note: Rounded to two decimal places$)$

$($Note: Rounded to two decimal places$)$

Intrinsic value of Portman's stock

The risk$-$free rate $($IRF$)$ is $4\mathrm{.}00\%,$ the market risk premium $($RPM$)$ is $4\mathrm{.}80\%,$ and Portman's beta is $1\mathrm{.}30.$

Assuming that the market is in equilibrium, use the information just given to complete the table.

What is the expected dividend yield for Portman's stock today?

$5\mathrm{.}63\%$

$7\mathrm{.}52\%$

$6\mathrm{.}82\%$

$7\mathrm{.}04\%$

Now let's apply the results of your calculations to the following situation:

Portman has $200,000$ shares outstanding, and Judy Davis, an investor, holds $3,000$ shares at the current price $($computed above$).$ Suppose Pertman is considering issuing $25\mathrm{.}000$ new shares at a price of $$20\mathrm{.}17$ per share, If the new shares are sold to outside investors, by how much will Judy's investment in Portman Industries be diluted on a per$-$share basis?

$50\mathrm{.}40$ per share