11 May Question7-2 Constant Growth ValuationBoehm Incorporated is expected to pay a $1.50 per
Question
Boehm Incorporated is expected to pay a $1.50 per share dividend
at the end of t
his year (i.e. D1=$1.50). The dividend is expected to grow at a
constant rate of
7% a year. The required rate of return on the stock, rs, is 15%.
What is the va
lue per share of Boehm’s share?
7-4 Preferred Stock Valuation
Nicks Enchiladas Incorporated has preferred stock outstanding
that pays a divide
nd of $5 at the end of each year. The preferred sells for $50 a
share. What is t
he stock required rate of returns?
7-5 Non-constant Growth Valuation
A company currently pays a dividend of $2 per share (D0=$2). It
is estimated tha
t the company’s dividend will grow at a rate of 20% per year for
the next 2 years,
then at a constant rate of 7% thereafter. The company’s stock
has a beta of 1.2,
the risk-free rate is 7.5%, and the market risk premium is 4%.
What is your esti
mate of the stock’s current price?
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