Out of 82 questions, these are the 10 I am having the most trouble with. Can som
ID: 2630685 • Letter: O
Question
Out of 82 questions, these are the 10 I am having the most trouble with. Can someone please show me how to solve them? Thanks!!!
The next dividend payment by Blue Cheese, Inc, will be $1.96 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. The stock currently sells for $39 per share. What is the dividend yield? What is the expected capital gains yield? The Sleeping Flower Co. has earnings of $1.80 per share. The benchmark PE for the company is 16. What stock price would you consider appropriate? What stock price would you consider appropriate if the benchmark PE were 19? Metallica Bearings, lnc, is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a $14 per share dividend in 10 years and will increase the dividend by 6 percent per year thereafter. If the required return on this stock is 12 percent what is the current share price? The next dividend payment by Blue Cheese, Inc, will be $1.76 per share. The dividends are anticipated to maintain a growth rate of 7 percent forever. If the stock currently sells for $34 per share, what is the required return? Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $10.15, but management expects to reduce the pay out by 4 percent per year indefinitely. If you require a return of 15 percent on this stock, what will you pay for a share today? Lane, Inc, has an issue of preferred stock outstanding that pays a $5.95 dividend every year in perpetuity. If this issue currently sells for $94 per share, what is the required return? Metallica Bearings, Inc, is a young start-up company. No dividends will be paid on the stock over the next 8 years because the firm needs to plow back its earnings to fuel growth. The company will pay a $13 per share dividend in 9 years and will increase the dividend by 6 percent per year thereafter. If the required return on this stock is 14 percent, what is the current share price? The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.50 per share on its stock. The dividends are expected to grow at a constant rate of 7 percent per year indefinitely. If investors require a 15 percent return on The Jackson-Timberlake Wardrobe Co. stock, what is the current price? What will the price be in 18 years? Marcel Co. is growing quickly. Dividends are expected to grow at a 25 percent rate for the next 3 years, with the growth rate falling off to a constant 8 percent thereafter. If the required return is 16 percent and the company just paid a $3.70 dividend. What is the current share price? E-Eyes.com Bank just issued some new preferred stock. The issue will pay a $13 annual dividend in perpetuity, beginning 9 years from now. If the market requires a 7 percent return on this investment, how much does a share of preferred stock cost today?Explanation / Answer
1. As per DDM, Stock price for perpetual growth= D1/(rate of return - growth rate)
D1 = 1.96
a. Dividend yield:
Current dividend is 1.96/1.04 = 1.88
Dividend yield = 1.88/39 = 4.83%
As per DDM, 39 = D1/(r - 0.04) = 1.96/(r - 0.04)
r - 0.04 = 1.96/39 = 0.05025
r = 9.03%
r is the rate of return = growth rate of dividend + growth rate of capital appreciation
Thus capital appreciation yield = 9.03% - 4% = 5.03%
2. a. appropriate Stock price = benchmark PE * EPS = 16*1.8 = 28.8
b. If PE was 19, stock price = 19*1.8 = 34.2
3. Stock price 10 years from now = 14/(0.12-0.06) = 233.33
Stock price today, discounted @12% = 233.33/1.12^9 = 84.14
4. As per DDM, stock price = D1/(r-g)
34 = 1.76/(r - 0.07)
r - 0.07 = 1.76/34 = 0.05176
r = 0.1218 or 12.18%
5. Stock price = D1/(r - g)
D1 = 10.15 * (1-0.04) = 9.744
r = 15% and g = -4%
stock price = 9.744/(0.15+.04 ) = 51.28
6. g = 0, stock price = D1/r
94 = 5.95/r
r = 5.95/94 = 6.33%
7. Share price after 9 years = 13/(.14 - 0.06) = 13/0.08 = 162.5
Share price today discounted at 14% for 8 years = 162.5/1.14^8 = 56.97
8. a. D1 = 1.5*1.07 = 1.605
stock price = 1.605/(0.15-0.07) = 1.605/.08 = 20.0625
b. Stock price in 18 years = 20.0625 * 1.07^18 = 67.81
9. D1 = 3.70*1.25 = 4.625
D2 = 4.625*1.25 = 5.78125
D3 = 5.78125*1.25 = 7.2265625
D4 = 7.2265625 * 1.08 = 7.8046875
Stock price = D1/(1+r) + D2/(1+r)^2 + D3/(1+r)^3 + D4/(r - g)
= 4.625/1.16 + 5.78125/1.16^2 + 7.2265625/1.16^3 + 7.8046875/(0.16-0.08) = 110.47
10. price 9 years from now = 13/0.07 = 185.714
Price today = 185.714/1.07^8 = 108.09
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.