Question: You expect ABC Industries to increase their current dividend (D(0)) by 25% for the next 3 years due to a strong cash balance and strong

You expect ABC Industries to increase their current dividend (D(0)) by 25% for the next 3 years due to a strong cash balance and strong expected earnings. The current dividend D(0) is $2.50. If the Beta of ABC Is 0.9, the risk free rate is 2.5% and the market risk premium is 6%. Answer the following assuming that the dividend will increase at a constant rate of 3% in years 4 and beyond. The market price of the stock is $100.

1) What is the expected dividend yield for the stock using D(1) and the market price of the stock?

2) What is the horizon value of the stock?

3) What is the intrinsic value of the stock today?

4) Should you invest in the stock? explain why or why not?

Please show work.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

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

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Sales, Production, Direct Materials Purchases, and Direct Labor Cost Budgets The budget director of Gourmet Grill Company requests estimates of sales, production, and other operating data from the...

You expect ABC Industries to increase their current dividend (D(0)) by 15% for the next 2 years due to a strong cash balance and strong expected earnings. Last Year's dividend D(0) was $3.00. If the...

Calculate the intrinsic value of ABC Corp using a three - stage dividend model assuming: The current dividend - D 0 ) is $ 5 per share, EPS ( 0 ) is $ 2 5 and the current payout ratio is 2 0 % -...

Hello, Need help with the following:Please see Rubric thks Using information from"Are You Paying Too Much for That Acquisition?" List and describe the components used to calculate synergy value....

1. In 2013, several data server companies took a dramatic decision to begin using energy surcharges to recapture rising energy costs. However, customers are critical of how the energy surcharges are...

could you assist me in completing this pass paper please MGMT2023 Financial Management 1- Final Exam of Semester 2, 2014 Study Guide Exam format & instructions 1) The Final Exam will be 2 hours and...

Answer questions below using the following attached documents. 1. After evaluating the acquisition based on the DCF analysis of both the expected and pessimistic scenarios, should Tim Harris offer...

9) for a common stock paying $3.50 annually in dividends if the D) $42.00 at should be the price for a common stock paying $3.50 annually growth rate is zero and the discount rate is 837 A) 543.75 B)...

please open the attachment. there are my questions 1. In computing its predetermined overhead rate, Marple Company inadvertently left its indirect labor costs out of the computation. This oversight...

Requesting assistance in account homework, have attached the homework in a word doc and excel spreadsheet Thank You! 1.) XYZ Company's December 31, 2015, trial balance is as follows: XYZ Company...

I want you to review my answers and provide the feedback( correct answers) Thank you. ### UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 7 -- Equity Financing PROBLEM 1 A person is considering...

Hexahelicene seems a poor candidate for optical activity because all its carbon atoms are sp2 hybrids and presumably flat. Nevertheless, hexahelicene has been synthesized and separated into...

Remember Tommy Twit from Chapter 3. Tommy is happiest when he has 8 cookies and 4 glasses of milk per day and his indifference curves are concentric circles centered around (8,4). Tommys mother, Mrs....

The degree of operating leverage is equal to: Multiple Choice 1 OCF ( F C V C ) 1 OCF F C 1 F C OCF 1 V C OCF 1 - ( F C V C ) OCF

2023 1040 form 1.Phillip and Claire are married and file a joint return. Phillip is self-employed as a real estate agent, and Claire is a flight attendant. Phillip and Claire have three dependent...