--%>
Assignment Help - homework help

Problem on price share and stock valuation

Brittney and Kim Wan Sun have successfully launched a successful talent agency, ABC. They expect the firm’s earnings and dividends to grow by 20% annually for the next 10 years and they establish a strong base and to grow at a constant 5% per year thereafter. ABC uses a 12% discount rate. Dividends are paid annually, for computational convenience. The next annual dividend of $10 will be paid exactly one year from today.

a. What is the price of a share of ABC?

b. Suppose Kofi market insight analysts thing ABC can only grow at 20% for 5 years, not 10, after which growth will stay at 5% indefinitely. What value would the Kofi analysts put on a share of ABC? Informally, is the stock valuation very sensitive to the length of the initial growth period?

c. Suppose another valuation service – Values R Us, believes that ABC forecasts are good in the near term (they believe that dividends will grow at 20% for 10 years as stated) but less good in the long term – they predict that dividends will grow at 3% rather than 5% indefinitely. What is their valuation of a share of ABC? Informally, is the stock valuation very sensitive to the long run growth rate?

   Related Questions in Corporate Finance

  • Q : WCR fend off takeover bid WCR fend off

    WCR fend off takeover bid: The WCR estimation ensures that a firm takes corrective action in time to correct its WC status. This ensures that the firm is always in a positive WC status. In other words, the firm will be able to pay off all its short-te

    		•
  • Q : Is PER an excellent guide to investments

    Is PER an excellent guide to investments?

    		•
  • Q : Problem on implied exchange rate a) The

    a) The Australian firm sold a ship to a Swiss firm and gave the Swiss client an option of paying either AUS10,000 or SF15,000 in 9 months. (i) In above, the Australian firm efficiently gave the Swiss client a free option to buy up

    		•
  • Q : What is Regular meeting of day-to-day

    Regular meeting of day-to-day commitments: The estimation of WCR also helps to ensure that there is positive WC existence. This proves helpful in meeting requirements which are regular in nature such as payments of salaries, wages, rental charges etc.

    		•
  • Q : Corporate Earnings Analysis exercise

    Identify two comparable corporations.  Explain why you think they are comparable to your corporation. Earnings analysis:  Do an earnings analysis of your corporation.  Calculate and plot.

    Q : Calculated Free Cash Flow I think Free

    I think Free Cash Flow (FCF) can be acquired from the Equity Cash Flow (CFac) using the relation as: FCF = CFac + Interests – ΔD. Is it true?

    		•
  • Q : Explain definition of put–call parity

    Explain the definition of put–call parity described by Reinach.

    		•
  • Q : Is it possible to use a constant WACC

    Is this possible to use a constant WACC in the valuation of a company along with a changing debt?

    		•
  • Q : Calculating Super normal profit The

    The case study of an economic analysis is done for Schlumberger, oilfield Service Company.  They are No. 1 in terms of market caps, revenue and employees globally. When any references are used/outside sources (except for Schlumberger's annual reports and financia

    		•
  • Q : Calculate valuation realized by

    Is a valuation realized through a prestigious investment bank a scientifically approved result that any investor could utilize as a reference?

    		•