Solution 1 A person is considering buying the stock of two home health companies that are similar in all respects except the proportion of earnings paid out
Solution A person is considering buying the stock of two home health companies that are similar in all respects except
Solution A person is considering buying the stock of two home health companies that are
buying the stock of two home health companies that are similar in all respects except the proportion of earnings paid out
Solution A person is considering buying the stock of two home health companies
that are similar in all respects except the proportion of earnings paid out
Solution A person is considering buying the stock of two
Solution A person is considering
(Solution) 1 A person is considering buying the stock of two home health companies that are similar in all respects except the proportion of earnings paid out...

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12.1 A person is considering buying the stock of two home health companies that are similar in all respects except the proportion of earnings paid out as dividends. Both companies are expected to earn $6 per share in the coming year, but Company D (for dividends) is expected to pay out the entire amount as dividends, while Company G (for growth) is expected to pay out only one-third of its earnings, or $2 per share. The companies are equally risky, and their required rate of return is 15 percent. D’s constant growth rate is zero and G’s is 8.33 percent. What are the intrinsic values of stocks D and G? 12.2 Medical Corporation of America (MCA) has a current stock price of $36 and its last dividend (D0) was $2.40. In view of MCA’s strong financial position, its required rate of return is 12 percent. If MCA’s dividends are expected to grow at a constant rate in the future, what is the firm’s expected stock price in five years? 12.6 Jane’s sister-in-law, a stockbroker at Invest, Inc., is trying to get Jane to buy the stock of HealthWest, a regional HMO. The stock has a current market price of $25, its last dividend (D0) was $2.00, and the company’s earnings and dividends are expected to increase at a constant growth rate of 10 percent. The required return on this stock is 20 percent. From a strict valuation standpoint, should Jane buy the stock?

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