Suppose a firm pays a dividend on it\'s stock at the end of every period, the st

Question

Suppose a firm pays a dividend on it's stock at the end of every period, the stock's beta is 1.2, the expected dividend next period is $2.2, and dividends are expected to grow two percent every period forever. If the expected return on the market is 11.2-percent and the risk free rate is 3.3-percent, what is the most you should pay for the stock based on the CAPM and constant growth stock valuation model.

2 Suppose a firm’s free cash flows are expected to be $27,680 at the end of the current period and are expected to grow three percent each period thereafter. If the cost of capital is 11.6-percent per period and the market value of debt is $130,293, calculate the fair market value of a single share of stock if there are 8,000 shares outstanding.

3 Suppose a firm’s free cash flows are expected to be $26,900 at the end of the current period and are expected to grow three percent each period thereafter. If the cost of capital is 10.4-percent per period and the market value of debt is $124,894, calculate the fair market value of the equity capital i.e. market capitalization.

Question 4 Suppose a common stock pays dividends at the end of each period and the stock has just paid a dividend in the amount of $3.2. If the stock's dividend growth rate is 20-percent for the next two periods and then 3.2-percent per period for every period thereafter and the discount rate is 10.3-percent per period, what is the most you should pay for the stock according to the constant growth stock valuation model.

Question 5 Suppose a common stock pays dividends at the end of each period and the stock has just paid a dividend in the amount of $3.3. If the . If the stock's dividend growth rate is 25-percent for the next two periods and then 3.5-percent per period for every period thereafter and the discount rate is 12.2-percent per period, what is the most you should pay for the stock according to the constant growth stock valuation model

Suppose a firm pays a dividend on it's stock at the end of every period, the stock's beta is 1.2, the expected dividend next period is $3.3, and dividends are expected to grow two percent every period forever. If the expected return on the market is 11.7-percent and the risk free rate is 3.3-percent, what is the most you should pay for the stock based on the CAPM and constant growth stock valuation model.

4

Suppose that a stock currently sells for $27 in the stock market, has an expected dividend next period of $3.2 per share, and future dividends are expected to grow at 2.7-percent per period. Calculate the expected return on this stock in the next period using the constant growth stock valuation model.  

Question 5

Suppose that a stock currently sells for $22 in the stock market, has just paid a dividend in the amount of $1.7 per share, and future dividends are paid at the end of each period and are expected to grow at 2.2-percent per period. Calculate the expected return on this stock in the next period using the constant growth stock valuation model.

Suppose the stock's dividend growth rate is 25-percent for the next two periods and then 3.5-percent per period for every period thereafter and the discount rate is 12.2-percent per period, what is the most you should pay for the stock according to the constant growth stock valuation model.

Calculate the ex-dividend price immediately after a $2.9 dividend was paid on a preferred stock having a zero dividend growth rate per period and a discount rate of 10-percent per period.

Calculate the ex-dividend price immediately after a $2 dividend was paid on a common stock having a constant dividend growth rate of 2.7-percent per period and a discount rate of 8.4-percent per period

Suppose that a stock currently sells for $27 in the stock market, has an expected dividend next period of $3.2 per share, and future dividends are expected to grow at 2.7-percent per period. Calculate the expected return on this stock in the next period using the constant growth stock valuation model

Suppose that a stock currently sells for $22 in the stock market, has just paid a dividend in the amount of $1.7 per share, and future dividends are paid at the end of each period and are expected to grow at 2.2-percent per period. Calculate the expected return on this stock in the next period using the constant growth stock valuation model.

Explanation / Answer

(1) Cost of Equity (CAPM) = 3.3 + (11.2-3.3)*1.2 = 12.78%

Maximum stock price = 2.2 / (.1278-.02) = $20.41

(2) Value of the firm = 27680/(.116-.03) = $321,860.47

Value of Debt = 130,293

Value of Equity = $321,860.47 - $130,293 = $191,567.47

Outstanding shares = 8000

Fair value per share = $23.95 (191567.47/8000)

(3) Value of the firm = 26900/(.104-.03) = $363,513.53

Value of Debt = 124,894

Market Cap (Value of Equity) = $363,513.53 - $124,894 = $238,619.51

(4) 27 = 3.2/(ke - .027)

=> ke - .027 = 0.1185

=> ke = 14.55%

Thus, the expected return is 14.55%

Note:- As per the policy we are supposed to answer first 4 questions. Please post a new question with the remaining problems

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