fin300 ch8 hw

A firm has a current EPS of $1.63 and a benchmark PE of 11.7. Earnings are expected to grow 2.6 percent annually. What is the target stock price in one year?

$19.57 $1.63(1.026)(11.7)

Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a dividend of $10 per share 10 years from today and will increase the dividend by 6 percent per year thereafter. If the required return on this stock is 11 percent, what is the current share price?

$78.18 =$10/(.11 − .06) =$200 =200.00/1.11^9 =$78.18

The next dividend payment by Savitz, Inc., will be $1.88 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. If the stock currently sells for $37 per share, what is the required return?

9.08% ($1.88/$37) + .04

You want a seat on the board of directors of Four Keys, Inc. The company has 195,000 shares of stock outstanding and the stock sells for $72 per share. There are currently 4 seats up for election. The company uses straight voting. How many shares do you need to guarantee that you will be elected to the board?

97,501 shares 195,000/2 + 1 = 97,501 shares

The next dividend payment by Savitz, Inc., will be $1.88 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. The stock currently sells for $37 per share. a. What is the dividend yield? b. What is the expected capital gains yield?

a. Dividend yield = $1.88/$37 = 5.08% b. Capital gains yield = 4% (same as dividend growth rate)