Question

Consider the case of Portman Industries: Portman Industries just paid a dividend of $1.44 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 16.00% over the next year. After the next year, though, Portman’s dividend is expected to grow at a constant rate of 3.20% per year. (Note: Do not round your intermediate calculations.)

Term Value Dividends one year from now (D1 ) $1.6704 (Note: Rounded to four decimal places) Horizon value (Pˆ1) $23.73 (Note: Rounded to two decimal places) Intrinsic value of Portman’s stock $23.73 (Note: Rounded to two decimal places) The risk-free rate (rRF ) is 4.00%, the market risk premium (RPM ) is 4.80%, and Portman’s beta is 1.30. Assuming that the market is in equilibrium, use the information just given to complete the table. What is the expected dividend yield for Portman’s stock today? 7.52% 7.04% 5.63% 6.82%
Now let’s apply the results of your calculations to the following situation: Portman has 200,000 shares outstanding, and Judy Davis, an investor, holds 3,000 shares at the current price (computed above). Suppose Portman is considering issuing 25,000 new shares at a price of $20.17 per share.
If the new shares are sold to outside investors, by how much will Judy’s investment in Portman Industries be diluted on a per-share basis? $0.40 per share $0.84 per share $0.34 per share $0.49 per share Thus, Judy’s investment will be diluted, and Judy will experience a total LOSS OR PROFIT? OF 780, 900, 1200 or 1440 JUST NEED ANSWER TO THE ENDING PART I BELIEVE 7.04% is the answer to the multiple choice also can you answer what the horizon value?

Answer 1

The expected dividend yield for Portman's stock today is 7.04%. The horizon value of the stock is $23.73.

Step-by-step explanation:

The expected dividend yield for Portman's stock today can be calculated by dividing the expected dividend per share by the current stock price. The expected dividend per share is found by taking the current dividend per share and multiplying it by 1 plus the expected dividend growth rate. In this case, the expected dividend per share is $1.44× (1 + 0.16) = $1.6704. The current stock price is given as the intrinsic value, which is $23.73. Therefore, the expected dividend yield is $1.6704 / $23.73 = 7.04%.

The horizon value refers to the value of the stock at the end of the projection period, assuming that the dividend growth rate remains constant. In this case, the horizon value is given as $23.73, rounded to two decimal places.