5. Weston Corporation just paid a dividend of $1.00 a share (i.e., Do-$1.00). Th

Question

5. Weston Corporation just paid a dividend of $1.00 a share (i.e., Do-$1.00). The dividend is expected to grow 12% a year for the next 3 years and the at 5% a year thereafter. What is the expected dividend per share for each of the next 5 years? 6. Tresnan Brothers is expected to pay a $1,800 per share dividend at the end of the year (i.e D1=$1.80). The dividend is expected to grow at a constant rate of 4% a year. The required rate of return, r, on the stock is 10%. What is the stock's current value per share 7. Scampini Technologies is expected to generate $25 million in free cash flow next year, and FCF i or preferred stock, and its cost of capital is 10%. If Scampini has 40 million shares ofstock outstanding, what is the stock's value per share? s expected to grow at a constant rate of 4% per year indefinitely. Scampi ni has no debt

Explanation / Answer

5) Statement showing Expected value of dividend

6) Po = D1/Ke-g

Po = Stock's current value, D1= Expected dividend , g = growth rate

Po = 1.8/10%-4%

=1.8/6%

=$30

Thus Stock's current value = $30

7) Firm's free cash flow is expected to grow at constant rate, hence we can apply constant growth formula to determine total value of firm

Firm value = FCF1/WACC-g

=25/10%-4%

=25/6%

=$416.67 million

Stock's value = Value of firm - debt-pref shares / no of shares

=416.67-0-0/40

416.67/40

=$10.42

Year Dividend Calculation 0 1.000 1 1.120 1+(1*12%) 2 1.254 1.12 + (1.12*12%) 3 1.405 1.254+(1.254*12%) 4 1.475 1.405+(1.405*5%) 5 1.549 1.475+(1.475*5%)

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