1) Antiques R Us is a mature manufacturing firm. The company just paid a dividen
ID: 2776956 • Letter: 1
Question
1) Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $11.90, but management expects to reduce the payout by 5 percent per year indefinitely. If you require a return of 12 percent on this stock, what will you pay for a share today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Current Share Price?
2) Lohn Corporation is expected to pay the following dividends over the next four years: $18, $14, $13, and $7.50. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends forever. If the required return on the stock is 14 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Current Share Price?
3)
Imprudential, Inc., has an unfunded pension liability of $571 million that must be paid in 15 years. To assess the value of the firm’s stock, financial analysts want to discount this liability back to the present.
If the relevant discount rate is 6.4 percent, what is the present value of this liability? (Enter your answer in dollars not in millions, e.g., 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
Present Value?
Imprudential, Inc., has an unfunded pension liability of $571 million that must be paid in 15 years. To assess the value of the firm’s stock, financial analysts want to discount this liability back to the present.
Explanation / Answer
1)
Price = recent dividend* ( 1 + growth rate )/( cost of equity - growth rate)
= 11.9*(1 - 0.05) * /(0.12 + 0.05)
= $66.5
2)
Total value = dividend + terminal value
Terminal value = year 5 dividend /( required rate - growth rate)
3) Present value = Future value/ ( 1 + discount rate) ^n
= 571,000,000/( 1+ .064)^15
= $225,170,602
required return = 14% Previous year dividend Dividend growth rate Dividend current year Terminal value Total Value Discount factor Discounted value 0 0 18 18 1.14 15.78947368 18 0 14 14 1.2996 10.7725454 14 0 13 13 1.481544 8.774629711 13 0 7.5 78 85.5 1.68896016 50.62286372 7.5 4% 7.8 Value of stock = Sum of discounted value= 85.95951251Related Questions
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