The Spinnaker Company has paid an annual dividend of $1.90 per share for some ti

Question

The Spinnaker Company has paid an annual dividend of $1.90 per share for some time. Recently, the board of directors voted to grow the dividend by 5% per year from now on. What is the most you would be willing to pay for a share of Spinnaker if you expect a 11% return on your stock investments? Round the answer to two decimal places. The Pancake Corporation recently paid a $3.20 dividend and is expected to grow at 5% forever. Investors generally require an expected return of at least 12% before they'll buy stocks similar to those of Pancake. What is Pancake's intrinsic value? Round the answer to two decimal places. Is it a bargain if it's selling at $81 a share? (Assume that a share is worth buying when its estimated value is greater or equal to 120% of the market price.) The Miller Milk Company has just come up with a new lactose-free dessert product for people who can't eat or drink ordinary dairy products. Management expects the new product to fuel sales growth at 31% for about two years. After that competitors will copy the idea and produce similar products, and growth will return to about 2%, which is normal for the dairy industry in the area. Miller recently paid an annual dividend of $2.50, which will grow with the company. The return on stocks similar to Miller's is typically around 10%. What is the most you would pay for a share of Miller? Round PVF values in intermediate calculations to four decimal places. Round the answer to two decimal places. Fox Woodworking Inc. issued preferred shares at a face value of $52 to yield 9% 10 years ago. The shares are currently selling at $62. What return are they earning for investors who buy them today? Round the answer to two decimal places.

Explanation / Answer

Answer:10 Apply the Gordon Model

P0 = D0 (1 + g) / (k – g)

= $1.90(1.05) / (.11 - .05)

= $1.995 / .06 = $33.25

Answer:11

a. P0 = D0 (1 + g) / (k – g)

=3.20(1.05)/(0.12-0.05)

=48

b. yes because our calculated intrinsic price is less than the market price.

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