1. Portman Industries just paid a dividend of $3.12 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 20% over the next year.
After the next year, though, Portman's dividend is expected to grow at a constant rate of 4% per year.
The risk-free rate is 5.00%, the market risk premium is 6%, and Portman's beta is 1.10. Assuming the market is equilibrium, use the information just given to find :
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Term
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Value
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1a.Dividends one year from now (D1)
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?
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1b.Horizon Value
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?
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1c.Intrinsic value of portman's stock
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?
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2. Portman has 200,000 shares outstanding, and Judy Davis, an investor, holds 3,000 shares at the current price as just found. Suppose Portman is considering issuing 25,000 new shares at a price of $41.87 per share.
If the new shares are sold to outside investors, by how much will Judy's investment in Portman be diluted on a per-share basis?
3. Thus Judy's investment will be diluted, and Judy will experience a total _profit or less_ of ________.