Assume That Bon Temps Is A Constant Growth Company Case Study
Describe briefly the legal rights and privileges of common stockholders
Common stockholders are known as owners of a corporation. Therefore they have the following rights and privileges:
• To receive stock certificates as per evidence of ownership.
• To vote during stockholders’ meetings. A firm’s common stockholders have the right to elect its firm’s directors, who in turn elect the officers who organize the business.
• The right to information and to receive financial reports regarding the firm.
• Right to buy shares of stock by the company before the shares are sold to the public. This will allow the owners to sustain their curiosity in the firm if they so choose.
Question B
Write out a formula that can be used to value any stock, regardless …show more content…
Question E
Assume that Bon Temps is a constant growth company whose last dividend (Dₒ, which was paid yesterday) was $2.00 and whose dividend is expected to grow indefinitely at a 6% rate.
(i) What is the firm’s expected dividend stream over the next 3 years?
Temp Force is a constant growth stock. Its dividend is estimated to increase at a constant rate of 6 percent per year.
0 1 2 3 4 | | | | |
D0 = 2.00 2.12 2.247 2.382
1.88 1.76 1.65
(ii) What is its current stock price?
The time line could be extended on out forever by find the value of Temp Force’s dividends for every year on out into the future, and then the PV of each dividend, discounted at r = 13%. Note that the dividend payments go up with time, but as long as rs > g, the present values decline with time. Besides that, with extended the graph on out forever and then summed the PVs of the dividends, we would have the value of the stock. On the other hand, because the stock is rising at a steady rate, its rate is able to be predictable with the constant growth …show more content…
=
=
=
= $32.10
(iv) What are the expected dividend yield, capital gains yield, and total return during the first year? The expected dividend yield in any year n is Dividend Yield = ,
While the expected capital gains yield is Capital Gains Yield = = r - .
Thus, the dividend yield in the first year is 10 percent, while the capital gains yield is 6 percent: Total return= 13.0% Dividend yield = $2.12/$30.29 = 7.0% Capital gains yield =
Common stockholders are known as owners of a corporation. Therefore they have the following rights and privileges:
• To receive stock certificates as per evidence of ownership.
• To vote during stockholders’ meetings. A firm’s common stockholders have the right to elect its firm’s directors, who in turn elect the officers who organize the business.
• The right to information and to receive financial reports regarding the firm.
• Right to buy shares of stock by the company before the shares are sold to the public. This will allow the owners to sustain their curiosity in the firm if they so choose.
Question B
Write out a formula that can be used to value any stock, regardless …show more content…
Question E
Assume that Bon Temps is a constant growth company whose last dividend (Dₒ, which was paid yesterday) was $2.00 and whose dividend is expected to grow indefinitely at a 6% rate.
(i) What is the firm’s expected dividend stream over the next 3 years?
Temp Force is a constant growth stock. Its dividend is estimated to increase at a constant rate of 6 percent per year.
0 1 2 3 4 | | | | |
D0 = 2.00 2.12 2.247 2.382
1.88 1.76 1.65
(ii) What is its current stock price?
The time line could be extended on out forever by find the value of Temp Force’s dividends for every year on out into the future, and then the PV of each dividend, discounted at r = 13%. Note that the dividend payments go up with time, but as long as rs > g, the present values decline with time. Besides that, with extended the graph on out forever and then summed the PVs of the dividends, we would have the value of the stock. On the other hand, because the stock is rising at a steady rate, its rate is able to be predictable with the constant growth …show more content…
=
=
=
= $32.10
(iv) What are the expected dividend yield, capital gains yield, and total return during the first year? The expected dividend yield in any year n is Dividend Yield = ,
While the expected capital gains yield is Capital Gains Yield = = r - .
Thus, the dividend yield in the first year is 10 percent, while the capital gains yield is 6 percent: Total return= 13.0% Dividend yield = $2.12/$30.29 = 7.0% Capital gains yield =