Finance Chp 9

Cortez, Inc., is expecting to pay out a dividend of $2.50 next year. After that it expects its dividend to grow at 7 percent for the next four years. What is the present value of dividends over the next five-year period if the required rate of return is 10 percent? (Donot round intermediate calculations. Round final answer to two decimal places.)

10.76 Expected dividends for Cortez, Inc., and their present value: D2 = D1(1 + g) = $2.50(1 + 0.07) = $2.675 D3 = D2(1 + g) = $2.675(1.07) = $2.862 D4 = D3(1 + g) = $2.862(1.07) = $3.063 D5 = D4(1 + g) = $3.063(1.07) = $3.277 Present value of the dividends = PV(D1) + PV(D2) + PV(D3) + PV(D4) + PV(D5) = $10.76

The Smart Start Corporation recently paid a dividend of $3.00 per share. Management expects dividends to grow at a constant rate of 10% per year. If the required rate of return on the company's stock is 14%, how much would the stock be worth at the end of three years from today? (Do not round intermediate calculations. Round final answer to two decimal places)

109.81

A communications company pays annual dividends of $8.50 with no possibility of it changing in the next several years. If the firm's stock is currently selling at $60.71, what is the required rate of return? (Round to nearest whole number.)

14% P0 = $60.71; g = 0; D0 = $8.50 P0=D/R, P0=14%

Suppose a firm's expected dividends for the next three years are as follows: D1 = $1.10, D2 = $1.20, and D3 = $1.30. After three years, the firm's dividends are expected to grow at 5.00 percent per year. What should the current price of the firm's stock (P0) be today if investors require a rate of return of 12.00 percent on the stock? (Do not round intermediate calculations. Round off final answer to the nearest $0.01)

16.74 P0 = P0 = $0.98 + $0.96 + $0.93 + $13.38 = $16.74

The Stagnant Growth Corporation has paid a constant dividend of $2.50 per year for the past 3 years and is expected to continue paying the same dividend per share for the foreseeable future. If the required rate of return on its common stock is 12%, the most an investor should pay per share is _____. (Round to two decimal places.)

20.83

Metasteel Limited Co. has a stable sales track record, but does not expect to grow in the next several years. Its last annual dividend was $5.75. If the required rate of return on similar investments is 18 percent, what is the current stock price? (Round the answer to two decimal places.)

31.94 D0 = $5.75; g = 0; R = 18% P0=D/R=5.75/.18=31.94

Jacob Suppliers has not paid out any dividend in the last three years. It does not expect to pay dividends in the next two years either as it recovers from an economic slowdown. Three years from now it expects to pay a dividend of $2.50 and then $3.00 in the following two years. What is the present value of the dividends to be received over the next five years if the discount rate is 15 percent? (Do not round intermediate calculations. Round final answer to two decimal places.)

4.85 Expected dividends for Jacobs Suppliers and their present value: D0 = D1 = D2 = $0; D3 = $2.50; D4 = $3.00; D5 = $3.00 Present value of the dividends = PV(D1) + PV(D2) +............+ PV(D5)=0+0+1.64+1.72+1.49=4.85

Zephyr Electricals is a company with no growth potential. Its last dividend payment was $4.50, and it expects no change in future dividends. What is the current price of the company's stock given a discount rate of 9 percent?

50 D0 = $4.50; g = 0; R = 9% = $50.00

You are interested in investing in a company that expects to grow steadily at an annual rate of 6 percent for the foreseeable future. The firm paid a dividend of $2.30 last year. If your required rate of return is 10 percent, what is the most you would be willing to pay for this stock? (Round to the nearest dollar.)

58

Ryder Supplies has its stock currently selling at $63.25. The company is expected to grow at a constant rate of 7 percent. If the appropriate discount rate is 17 percent, what is the expected dividend, a year from now? (Round the answer to two decimal places.)

6.33 P0 = $63.25; g = 7%; R = 17% P0 = D1/R-g=6.325

A share of common stock just paid a dividend of $3.25. It is expected that the stock will grow at a rate of 18 percent. If investors require a rate of return of 24 percent, what should be the price of the stock? (Do not round intermediate calculations. Round final answer to two decimal places.)

63.92

Givens, Inc., is a fast growing technology company that paid a $1.25 dividend last week. The company's expected dividend growth rates over the next four years are as follows: 25 percent, 30 percent 35 percent, and 30 percent. The company then expects to settle down to a constant-growth rate of 8 percent annually. If the required rate of return is 12 percent, what is the present value of the dividends over the fast growth phase? (Do not round intermediate calculations. Round final answer to two decimal places.)

7.23 Expected dividends for Givens, Inc., and their present value: D0 = $1.25 D1 = D0(1 + g) = $1.25(1.25) = $1.563 D2 = D1(1 + g) = $1.563(1.30) = $2.031 D3 = D2(1 + g) = $2.031(1.35) = $2.742 D4 = D3(1 + g) = $2.742(1.30) = $3.565 Present value of the dividends = PV(D1) + PV(D2) + PV(D3) + PV(D4)=1.4+1.62+1.95+2.27=7.23

Ambassador Corp. sells household cleaners producing a revenue stream that has remained unchanged in the last few years. The firm does not expect any change in its sales or earnings in the next several years. The stock is currently selling at $46.88. If the required rate of return is 16 percent, what is the dividend paid by this company? (Round the answer to two decimal places.)

7.50 P0 = $46.88; g = 0; R = 16% 0.16= $7.50

Assume that you are considering the purchase of a stock which will pay dividends of $4.50 during the next year. Further assume that you will be able to sell the stock for $85.00 one year from today and that your required rate of return is 15 percent. How much would you be willing to pay for the stock today? (Round off to the nearest $0.01)

77.83

Johnson Corporation has just paid a dividend of $4.45. The company has forecasted a growth rate of 8 percent for the next several years. If the appropriate discount rate is 14 percent, what is the current price of this stock? (Round to the nearest dollar.)

80 D0 = $4.45; g = 8%; R = 14% P0 = = = $80.00