Bcor 340 chpt. 7
Delfino's expects to pay an annual dividend of $1.50 per share next year. What is the anticipated dividend for Year 5 if the firm increases its dividend by 2 percent annually?
$1.50 ×(1.02)^4
Lamey Gardens has a dividend growth rate of 5.6 percent, a market price of $13.16 a share, and a required return of 14 percent. What is the amount of the last dividend this company paid?
$13.16 = (D0 ×1.056)/(.14 -.056) D0= $1.05
Which one of the following will increase the current value of a stock?
Increase in the capital gains yield
Sugar Cookies will pay an annual dividend of $1.23 a share next year. The firm expects to increase this dividend by 8 percent per year the following four years and then decrease the dividend growth to 2 percent annually thereafter. Which one of the following is the correct computation of the dividend for Year 7?
($1.23) ×(1.08)^4×(1.02)^2
The common stock of Up-Towne Movers sells for $33 a share, has a rate of return of 11.4 percent, and a dividend growth rate of 2 percent annually. What was the amount of the last annual dividend paid?
D0 = [$33 × (.114 - .02)] / (1 + .02) = $3.04
Last year, when the stock of Alpha Minerals was selling for $49.50 a share, the dividend yield was 3.4 percent. Today, the stock is selling for $41 a share. What is the total return on this stock if the company maintains a constant dividend growth rate of 2.2 percent?
D0= .034× $49.50= $1.683 Total return = [($1.683 × 1.022)/$41] + .022 = .0640, or 6.40 percent
The Three Amigos just paid an annual dividend of $.60 per share but plans to double that amount each year for three years. After that, the firm expects to maintain a constant dividend. What is the value of this stock today if the required return is 15 percent?
D1 = $.60 × 2 = $1.20 D2 = $1.20 × 2 = $2.40 D3 = D4 = Dt = $2.40 × 2 = $4.80 P3 = $4.80 / .15 = $32 P0 = $1.20 / 1.15 + $2.40 / 1.15^2 + ($4.80 + 32) / 1.15^3 P0 = $27.05
Braxton's Cleaning Company stock is selling for $32.60 a share based on a rate of return of 13.8 percent. What is the amount of the next annual dividend if the dividends are increasing by 2.4 percent annually?
D1 = $32.60 ×(.138-.024) = $3.72
The Glass Ceiling paid an annual dividend of $1.64 per share last year and just announced that future dividends will increase by 1.3 percent annually. What is the amount of the expected dividend in Year 6?
D6= $1.64 ×(1.013)^6 = $1.77
Triad common stock is selling for $27.80 a share and has a dividend yield of 2.8 percent. What is the dividend amount?
Dividend =.028 ×$27.80 = $.78
The capital gains yield equals which one of the following?
Dividend growth rate
The required return on a stock is equal to which one of the following if the dividend on the stock decreases by a constant percent per year?
Dividend yield + Capital gains yield
For the past six years, the price of Slippery Rock stock has been increasing at a rate of 8.21 percent a year. Currently, the stock is priced at $43.40 a share and has a required return of 11.65 percent. What is the dividend yield?
Dividend yield = .1165-.0821 = .0344, or 3.44 percent
The required return on Mountain Brook stock is 13.8 percent and the dividend growth rate is 3.64 percent. The stock is currently selling for $32.80 a share. What is the dividend yield?
Dividend yield = .138-.0364 = .1016, or 10.16 percent
Breakfast Hut pays a constant annual dividend of $1.39 per share. How much are you willing to pay for one share if you require a rate of return of 14.6 percent?
P = $1.39 /.146 = $9.52
This morning, you purchased a stock that will pay an annual dividend of $1.90 per share next year. You require a 12 percent rate of return and the dividend increases at 3.5 percent annually. What will your capital gain be in dollars on this stock if you sell it three years from now?
P0 = $1.90/(.12 -.035) = $22.35 P3 = [$1.90 × (1.035)3]/(.12 -.035) = $24.78 Capital gain = $24.78 -22.35 = $2.43
The Impulse Shopper recently paid an annual dividend of $1.13 per share. The company just announced that it is suspending all dividend payments on its common stock for the next five years. After that, the company expects to pay $.50 a share at the end of each year. At a required return of 18 percent, what is this stock worth today?
P0 = ($.50/.18) / (1 + .18)^5 = $1.21
The Sports Club plans to pay an annual dividend of $1.20 per share next year, $1.12 per share a year for the following two years, and then a final liquidating dividend of $14.20 per share four years from now. How much is one share of this stock worth to you today if you require a rate of return of 18.7 percent of this risky investment?
P0 = ($1.20 / 1.1871) + ($1.12 / 1.1872) + ($1.12 / 1.1873) + ($14.20 / 1.1874) = $9.63
Healthy Foods just paid its annual dividend of $1.62 a share. The firm recently announced that all future dividends will be increased by 2.1 percent annually. What is one share of this stock worth to you if you require a rate of return of 15.7 percent?
P0 = ($1.62 × 1.021)/(.157-.021) = $12.16
Spiral Staircase is offering preferred stock which is referred to as 10-10 stock. This stock will pay an annual dividend of $10 a share starting 10 years from now. What is this stock worth to you today if you require a rate of return of 9.5 percent?
P0 = ($10 / .095) / 1.095^9 = $46.51
JL Tools is a young start-up company. The company expects to pay its first dividend of $.20 a share in Year 6 with annual dividend increases of 1.5 percent thereafter. At a required return of 12 percent, what is the current share price?
P0 = [$.20/(.12 -.015)] / (1 + .12)^5 = $1.08
Horseshoe Stables is losing significant market share and thus its managers have decided to decrease the firm's annual dividend. The last annual dividend was $.86 a share but all future dividends will be decreased by 3.5 percent annually. What is a share of this stock worth today at a required return of 17.8 percent?
P0 = {$.86 × [1 + (-.035)]} / [.178 - (-.035)] = $3.90
TMS just paid an annual dividend of $2.84 per share on its stock. The dividends are expected to grow at a constant rate of 1.85 percent per year. If investors require a rate of return of 10.4 percent, what will be the stock price be in Year 11?
P11 = ($2.84 ×1.0185^12)/(.104-.0185) = $41.39
The Fish House is expected to pay annual dividends of $1.23 and $1.25 at the end of the next two years, respectively. After that, the company expects to pay a constant dividend of $1.35 a share. What is the value of this stock at a required return of 16.4 percent?
P2 = ($1.35/.164) = $8.23 P0 = [$1.23 /1.164] + [($1.25 + 8.23)/1.1642] P0 = $8.05
Nu-Tek is expanding rapidly. As a result, the company expects to pay annual dividends of $.62, .80, and $1.05 per share over the next three years, respectively. After that, the dividend is projected to increase by 4 percent annually. What is the current value of this stock if the required return is 16 percent?
P3 = ($1.05 ×1.04)/(.16 -.04) = $9.10 P0 = ($.62 /1.16) + ($.80/1.162) + [($1.05 + 9.10)/1.163] = $7.63
Atlas Home Supply has paid a constant annual dividend of $2.40 a share for the past 15 years. Yesterday, the firm announced the dividend will increase next year by 10 percent and will stay at that level through Year 3, after which time the dividends will increase by 2 percent annually. The required return on this stock is 12 percent. What is the current value per share?
P3 = ($2.40 ×1.10 ×1.02)/(.12 -.02) = $26.928 P0 = [($2.40 ×1.10)/1.12] + [($2.40 ×1.10)/1.122] + {[($2.40 ×1.10) + $26.928]/1.123} P0= $25.51
Village East expects to pay an annual dividend of $1.40 per share next year, and $1.68 per share for the following two years. After that, the company plans to increase the dividend by 3.4 percent annually. What is this stock's current value at a discount rate of 13.7 percent?
P3= ($1.68 × 1.034) / (.137 - .034)= $16.86 P0 = $1.40 / 1.137 + $1.68 / 1.137^2 + ($1.68+ $16.86)/ 1.137^3 P0= $15.15
Gamma Corp. is expected to pay the following dividends over the next four years: $7.50, $8.25, $15, and $1.80. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends, forever. If the required return is 14 percent, what is the current share price?
P4 = ($1.80 × 1.04)/(.14 -.04) = $18.72 P0 = ($7.50/1.14) + ($8.25/1.14^2) + ($15/1.14^3) + [($1.80 + 18.72)/1.14^4] = $35.20
Business Solutions is expected to pay its first annual dividend of $.84 per share in Year 3. Starting in Year 6, the company plans to increase the dividend by 2 percent per year. What is the value of this stock today, Year 0, at a required return of 14.4 percent?
P5 = ($.84 ×1.02)/(.144-.02) = $6.91 P0 =($.84/1.1443) + ($.84/1.1444) + [($.84 + 6.91)/1.1445] = $5.01
Best Ever Toys just paid its annual dividend of $1.78 per share. The required return is10.6 percent and the dividend growth rate is 1.23 percent. What is the expected value of this stock five years from now?
P5 = [$1.78 ×(1 + .0123)^6]/(.106-.0123) = $20.44
River Rock, Inc., just paid an annual dividend of $2.80. The company has increased its dividend by 2.5 percent a year for the past 10 years and expects to continue doing so. What will a share of this stock be worth 6 years from now if the required return is 16 percent?
P6 = ($2.80 ×1.0257)/(.16 -.025) = $24.65
Vegan Delite stock is valued at $68.60 a share. The company pays a constant annual dividend of $2.40 per share. What is the total return on this stock?
R = ($2.40/$68.60) + 0 = .0350, or 3.50 percent
Computing the present value of a growing perpetuity is most similar to computing the current value of which one of the following?
Stock with a constant-growth dividend
A broker is an agent who:
brings buyers and sellers together.
An agent who buys and sells securities from inventory is called a:
dealer.
Most trades on the NYSE are executed:
electronically.
The Toy Chest will pay an annual dividend of $2.64 per share next year and currently sells for $48.30 a share based on a market rate of return of 11.67 percent. What is the capital gains yield?
g = .1167- ($2.64/$48.30) = .0620, or 6.20 percent
A stock has paid dividends of $1.70, $1.85, $2.00, $2.20, and $2.50 over the past five years, respectively. What is the average capital gains yield?
g = [($1.85 - 1.70) / $1.70 + ($2.00 - 1.85) / $1.85 + ($2.20 - 2.00) / $2.00 + ($2.50 - 2.20) / $2.20] / 4 = .1014, or 10.14 percent
Dry Dock Marina is expected to pay an annual dividend of $1.58 next year. The stock is selling for $18.53 a share and has a total return of 9.48 percent. What is the dividend growth rate?
g =.0948- ($1.58/$18.53) = .0095, or .95 percent
The dividend yield on a stock will increase if the:
stock price decreases.
When valuing a stock using the constant-growth model, D1 represents the:
the next expected annual dividend.
