Question
options for last question:
a) profit or loss
b) $5670, $4914, $9072, $7560
As companies evolve, certain factors can drive sudden growth. This may lead to a period of n growth. This would For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. cause the expected growth rate to increase or decrease, thereby affecting the valuation model. onconstant, or variable, Consider the case of Portman Industries: Portman Industries profitable, and its dividend is expected to grow by 12.00% over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 2.40% per year. just paid a dividend of $1.92 per share. The company expects the coming year to be very Investors expect a required rate of return of 8.76% on Term Value Dividends one year from now (D,) Portman's stock value of Portman's stock at the Assuming that the market is in equilibrium, use the end of the nonconstant dividend- growth period Portman's stock price information just given to complete the table. What is the expected dividend yield for Portman's stock today? 6.21% 5.09% 6.36% 6.76% Now let's apply the results of your calculations to the following situation has 900,000 shares outstanding, and Judy Davis, an investor, holds 13,500 shares at the current price above). Suppose Portman is considering issuing 112,500 new shares at a price of $28.74 per share. If the are sold to outside investors, by how much will Judy's investment in Portman Industries be diluted on a Portman com per-share basis? O $1.18 per share O s0.48 per share O s0.56 per share O $o.69 per share of s, Judy's investment will be diluted, and Judy will experience a total Thus,
Explanation / Answer
Expected Dividend (D1) = Current Dividend (D0) * 1+Growth Rate (G)
=1.92* (1 +0.12)
=1.92*1.12
=2.15
Value of stock end of non constant year = 2.15*(1+0.024)/0.0876-0.0240
=2.15*1.024 / 0.0636
=2.2/0.0636
=34.59
Stock price = (2.15/1.0876) + (34.59/1.0876)
=1.98+31.8
=33.78
