3, Frey Corp. is experiencing rapid growth. Dividends are expected to grow at 26

Question

3,

Frey Corp. is experiencing rapid growth. Dividends are expected to grow at 26 percent per year during the next three years, 16 percent over the following year, and then 6 percent per year indefinitely. The required return on this stock is 15 percent, and the stock currently sells for $74 per share. What is the projected dividend for the coming year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

4.

You have found the following stock quote for RJW Enterprises, Inc., in the financial pages of today’s newspaper.

What was the closing price for this stock that appeared in yesterday’s paper? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

If the company currently has 17 million shares of stock outstanding, what was net income for the most recent four quarters? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

5.

Storico Co. just paid a dividend of $1.65 per share. The company will increase its dividend by 24 percent next year and will then reduce its dividend growth rate by 6 percentage points per year until it reaches the industry average of 6 percent dividend growth, after which the company will keep a constant growth rate forever. If the stock price is $42.54, what required return must investors be demanding on Storico stock? (Hint: Set up the valuation formula with all the relevant cash flows, and use trial and error to find the unknown rate of return.) (Do not round intermediate calculations and round your final answer to 1 decimal place. (e.g., 32.16))

Explanation / Answer

3 Frey Corp. is experiencing rapid growth. Dividends are expected to grow at 26 percent per year during the next three years, 16 percent over the following year, and then 6 percent per year indefinitely. The required return on this stock is 15 percent, and the stock currently sells for $74 per share. What is the projected dividend for the coming year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) In the absence of information regarding the number of shares, the same is assumed to be 100 and $ 74 is assumed to be the face value Since the required return on stock is 15%, which is expected to grow by 26% during the next three years, projection for the coming year dividend will be 15% + 26% of 15%   Projected dividend $        1,398.60 4 You have found the following stock quote for RJW Enterprises, Inc., in the financial pages of today’s newspaper. 52-WEEK YLD VOL NET HI LO STOCK (DIV) % PE 100s CLOSE CHG 73.08 53.92 RJW 1.4 2.5 15 18,027 ?? 0.2 Average Share Price = 63.5 Dividend calculation = X / 63.5 * 100 = 2.5 X = 3.93700787 Since Dividend quoted in the newspaper is 1.4, the corresponding share price will be 1.4 X 63.5 / 3.94 = 22.56345 This price is -0.2 lower than the opening quote What was the closing price for this stock that appeared in yesterday’s paper? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))   Yesterday’s closing price $ 22.76 If the company currently has 17 million shares of stock outstanding, what was net income for the most recent four quarters? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) PE Ratio = Price per share/Earning Hence, PE Ratio = 15 = 22.76/Earning per share For 18.027 million shares outstanding, the earnings would be 22.76 * 18,027,000/15 = $ 27352968.00 Correspondingly, if the Company has only 17 million shares outstanding, the Net Income would be   Net income $ 25794666.67 5 Storico Co. just paid a dividend of $1.65 per share. The company will increase its dividend by 24 percent next year and will then reduce its dividend growth rate by 6 percentage points per year until it reaches the industry average of 6 percent dividend growth, after which the company will keep a constant growth rate forever. If the stock price is $42.54, what required return must investors be demanding on Storico stock? (Hint: Set up the valuation formula with all the relevant cash flows, and use trial and error to find the unknown rate of return.) (Do not round intermediate calculations and round your final answer to 1 decimal place. (e.g., 32.16)) In the absence of information regarding the number of shares outstanding, calculation of the rate of return cannot be done.

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