Finance H.W (13 questions)

19 Jul Finance H.W (13 questions)

Thress Industries just paid a dividend of $3.25 a share (i.e., D0 = $3.25). The dividend is expected to grow 7% a year for the next 3 years and then 15% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your answers to the nearest cent.

a. D1 = $

b. D2 = $

c. D3 = $

d. D4 = $

e. D5 = $

Constant Growth Valuation

Boehm Incorporated is expected to pay a $2.00 per share dividend at the end of this year (i.e., D1 = $2.00). The dividend is expected to grow at a constant rate of 4% a year. The required rate of return on the stock, rs, is 12%. What is the estimated value per share of Boehm’s stock? Round your answer to the nearest cent.

$

Constant Growth Valuation

Woidtke Manufacturing’s stock currently sells for $29 a share. The stock just paid a dividend of $1.50 a share (i.e., D0 = $1.50), and the dividend is expected to grow forever at a constant rate of 9% a year. What stock price is expected 1 year from now? Round your answer to the nearest cent. $

What is the estimated required rate of return on Woidtke’s stock? Round the answer to three decimal places.      %

Preferred Stock Valuation

Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $4 at the end of each year. The preferred sells for $40 a share. What is the stock’s required rate of return (assume the market is in equilibrium with the required return equal to the expected return)? Round the answer to two decimal places.

%

Nonconstant Growth Valuation

A company currently pays a dividend of $1.5 per share (D0 = $1.5). It is estimated that the company’s dividend will grow at a rate of 17% per year for the next 2 years, and then at a constant rate of 5% thereafter. The company’s stock has a beta of 1.9, the risk-free rate is 4%, and the market risk premium is 6%. What is your estimate of the stock’s current price? Round your answer to the nearest cent.

$

Constant Growth Rate, g

A stock is trading at $85 per share. The stock is expected to have a year-end dividend of $3 per share (D1 = $3), and it is expected to grow at some constant rate g throughout time. The stock’s required rate of return is 11% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of g? Round the answer to three decimal places.

%

Constant Growth Valuation

Crisp Cookware’s common stock is expected to pay a dividend of $2.75 a share at the end of this year (D1 = $2.75); its beta is 0.70; the risk-free rate is 4.5%; and the market risk premium is 4%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $38 a share. Assuming the market is in equilibrium, what does the market believe will be the stock’s price at the end of 3 years (i.e., what is  )? Do not round intermediate steps. Round your answer to the nearest cent.

$

Preferred Stock Rate of Return

What is the required rate of return on a preferred stock with a $50 par value, a stated annual dividend of 7% of par, and a current market price of (a) $51, (b) $75, (c) $105, and (d) $134 (assume the market is in equilibrium with the required return equal to the expected return)? Round the answers to two decimal places.

a.    %

b.    %

c.    %

d.    %

Declining Growth Stock Valuation

Brushy Mountain Mining Company’s coal reserves are being depleted, so its sales are falling. Also, environmental costs increase each year, so its costs are rising. As a result, the company’s earnings and dividends are declining at the constant rate of 9% per year. If D0 = $3 and rs = 16%, what is the estimated value of Brushy Mountain’s stock? Round your answer to the nearest cent.

$

Nonconstant Growth Stock Valuation

Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $0.50 coming 3 years from today. The dividend should grow rapidly – at a rate of 55% per year – during Years 4 and 5. After Year 5, the company should grow at a constant rate of 4% per year. If the required return on the stock is 12%, what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)? Round your answer to the nearest cent. Do not round your intermediate computations.

$

Preferred Stock Valuation

Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 9% of its $100 par value. Preferred stock of this type currently yields 8%. Assume dividends are paid annually.

a. What is the estimated value of Rolen’s preferred stock? Round your answer to the nearest cent.  $

b. Suppose interest rate levels have risen to the point where the preferred stock now yields 12%. What would be the new estimated value of Rolen’s preferred stock? Round your answer to the nearest cent. $

Return on Common Stock

You buy a share of The Ludwig Corporation stock for $21.40. You expect it to pay dividends of $1.10, $1.15, and $1.2023 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $31.47 at the end of 3 years.

a. Calculate the growth rate in dividends. Round your answer to two decimal places.  %

b. Calculate the expected dividend yield. Round your answer to two decimal places.  %

c. Assuming that the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to obtain the expected total rate of return. What is this stock’s expected total rate of return (assume the market is in equilibrium with the required return equal to the expected return)? Round your answer to two decimal places.  %

Constant Growth Stock Valuation

Investors require a 17% rate of return on Brooks Sisters’ stock (rs = 17%).

a. What would the value of Brooks’s stock be if the previous dividend was D0 = $3.75 and if investors expect dividends to grow at a constant compound annual rate of (1) – 2%, (2) 0%, (3) 5%, or (4) 11%? Round your answers to the nearest cent.

1. $

2. $

3. $

4. $