Quiz 7 Stock Valuation

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Nofal Corporation will pay a $3.65 per share dividend next year. The company pledges to increase dividends by 5.1 percent per year, indefinitely. If you require a return of 12 percent on your investment, how much will you pay for the company's stock today?

P0 = D1/(r-g) Brandon: correct, full credit. P0 = 3.65/(.12 - .051) = 3.65/(.07) = $52.14 Me: didn't round P0 = 3.65/(.12-.051) = $52.90

Ramblers, Inc. is expected to pay annual dividends of $1.90 and $2.10 over the next two years, respectively. After that, the company expects to pay a constant dividend of $2.30 a share. What is the value of this stock at a required return of 16 percent? PV of D1 = PV of D2 = PV of P2 = Price Today =

PV of D1 = 1.64 PV of D2 = 1.56 PV of P2 = ????? (10.68) Price Today = ???? HELP

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