California Clinics, an Investor-Owned Chain of Ambulatory Essay

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California Clinics, an investor-owned chain of ambulatory care clinics, just paid a dividend of $2 per share. The firm's dividend is expected to grow at a constant rate of 5% per year, and investors require a 15% rate of return on the stock.

What is the stock's value?

PO = D 1 / ( KS - G )

P PO = Price

D1 = The next dividend. D1 = D0 (1 + G)

KS = Rate of Return

G = Growth Rate=D1/(Ks-G)

P = 2.10 / (15% - 5%)

P = $

Suppose the riskiness of the stock decreases, which causes the required rate of return to fall to 13%. Under these conditions, what is the stock's value?

P = 2.10 / (13% - 5%)

P = $26.25

Return to the original 15% required rate of return and assume a dividend growth rate estimate increase to 7% per year, what is the stock value?

= 2 * 1.07 = 2.14

P = 2.

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14 / (15% - 7%)

P = $26.75

4.

Explain how each of the four (4) fundamental factors that affect the supply and demand for investment capital, and hence, interest rates, (namely productive opportunities, time preferences for consumption, risk, and inflation) affects the cost of money.

Holding cash has a certain amount of expense related to it. That is, it is costly in a way to hold cash because there is a certain opportunity cost attached to it; the value of the cost is driven by several different factors. Productive opportunities represent one such factor because if production opportunities are plentiful then this puts upward pressure on the demand for capital and consequently also puts upward pressure on interest rates. Time preferences for consumption also affect the supply and demand for investment capital because if you.....

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"California Clinics An Investor-Owned Chain Of Ambulatory" (2011, February 08) Retrieved May 21, 2025, from
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"California Clinics An Investor-Owned Chain Of Ambulatory", 08 February 2011, Accessed.21 May. 2025,
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