FIN 3000 CH 8 HW

Hudson Corporation will pay a dividend of $2.58 per share next year. The company pledges to increase its dividend by 4 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) P0 = 2.58/(0.12 - 0.04) P0 = $32.25

Grateful Eight Co. is expected to maintain a constant 6.2 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 8 percent, what is the required return on the company's stock?

Required rate of return = 6.2% + 8% R = 14.20%

ABG Corporation has the following dividend forecasts for the next three years: Year Expected Dividend 1 $ .25 2 $ .50 3 $ 1.25 After the third year, the dividend will grow at a constant rate of 5% per year. The required return is 10%. What is the price of the stock today? $27.50 $18.70 $21.30 $17.40 $26.25

$21.30

Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 4 percent thereafter. If the required return is 11 percent, and the company just paid a dividend of $2.45, what is the current share price?

$68.64

Odell's One-Handed Grabs will pay a dividend of $3.40 per share next year. The company pledges to increase its dividend by 3.25 percent per year indefinitely. If you require a return of 9 percent on your investment, how much will you pay for the company's stock today? $52.48 $59.13 $67.56 $71.58 $65.71

Current price = D1/(Required Return-Growth rate) Current Price = 3.40/(0.09-0.0325) Current Price = $59.13

The next dividend payment by Savitz, Inc., will be $1.60 per share. The dividends are anticipated to maintain a growth rate of 6 percent forever. If the stock currently sells for $30 per share, what is the required return?

Dividend Yield = Dividend/Current Price DY = 1.60/30 DY = 5.3% Required Rate of Return = Dividend Yield + Capital Gain Yield R = 5.3% + 6% R = 11.3%

Suppose we are interested in the price of a stock in five years, P5. We just paid a dividend of $2.20 and the growth rate is 4%. The required return is 12%. What is the price of the stock in five years? $38.20 $32.70 $17.40 $34.80 $24.00

Price in 5 Years = P5 = D6 / (k-g) D6 = D0*(1+g)^6 = 2.20*(1+0.04)^6 = 2.78370184. P5 = 2.78370184 / (0.12-0.04) = 2.78370184 / 0.08 Price in 5 Years = $34.80.

After navigating the Mint application through the link provided on McGraw-Hill Connect (you will need to create a free account), identify which of the following tools is NOT provided through the use of this application. Ways to Save Investment Goals All of the above tools are provided through this application Spending Habits Account Monitoring

All of the above tools are provided through this application

Burnett Corp. pays a constant $8.25 dividend on its stock. The company will maintain this dividend for the next 13 years and will then cease paying dividends forever. If the required return on this stock is 11.2 percent, what is the current share price?

Current share price=$8.25*Present value of annuity factor(11.2%,13) Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate =$8.25[1-(1.112)^-13]/0.112 =$8.25x6.682519757 =$55.13

The next dividend payment by Mayfield, Inc., will be $2.50 per share. The dividends are anticipated to maintain a growth rate of 4.4 percent forever. If the stock currently sells for $36 per share, what is the required return? 10.82% 11.14% 11.68% 11.74% 11.21%

Dividend Yield = Dividend/Current Price DY = 2.50/36 DY = 6.94% Required Rate of Return = Dividend Yield + Capital Gain Yield R = 6.94% + 4.4% R = 11.34%? Not 11.14

If the current dividend (D0) is $3.00 and the growth rate is 6%. How much will the dividend be at Time 5? $4.015 $4.501 $6.015 $6.00 $6.501

Dividend at Time = D0 *(1+growth rate)^5 Dividend at Time = 3.00(1+0.06)^5 Dividend at Time = 3.00(1.33822558) Dividend at Time = $4.015

Bedeker, Inc., has an issue of preferred stock outstanding that pays a $4.35 dividend every year in perpetuity. If this issue currently sells for $95 per share, what is the required return?

Required rate of return = (dividend / market price ) × 100 R = (4.35/95) x 100 R = 4.58%

Suppose D0 is $5.70, R is 10%, and g is 5%. What is the price per share today? $57.00 $135.00 $119.70 $129.70 $114.00

Price = D0*(1+g) / (k-g) Price = 5.70 *(1+0.05) / (0.10 - 0.05) Price = 5.958 / (0.05) Price = $119.70.

Lohn Corporation is expected to pay the following dividends over the next four years: $13, $9, $6, and $2.75. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 10.75 percent, what is the current share price?

Value after year 4=(D4*Growth rate)/(Required return-Growth rate) =(2.75*1.05)/(0.1075-0.05)=$50.2173913 Current share price=Future dividends*Present value of discounting factor(10.75%,time period) (13/1.1075)+(9/1.1075^2)+(6/1.1075^3)+(2.75/1.1075^4)+($50.2173913/1.1075^4) =$58.70

The Perfect Rose Co. has earnings of $3.18 per share. The benchmark PE for the company is 18. a. What stock price would you consider appropriate? b. What if the benchmark PE were 21?

a) Benchmark PE = Market Price/EPS 18 = Market Price/3.18 Market Price = $57.24 b)Benchmark PE = Market Price/EPS 21 = Market Price/3.18 Market Price = $66.78

KCP Inc. is expected to maintain a constant 3.2 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 5.1 percent, what is the required return on the company's stock? 8.00% 9.30% 8.30% 7.30% 6.90%

Required Rate of Return = Dividend Yield + Capital Gain Yield R = 5.1% + 3.2% R = 8.30%

Cardi B, Inc., has an issue of preferred stock outstanding that pays a $3.15 dividend every year in perpetuity. If this issue currently sells for $72 per share, what is the required return? 4.38% 3.84% 4.94% 3.25% 4.14%

R = 3.15/72 R = 4.38%

The Jackson-Timberlake Wardrobe Co. just paid a dividend of $2.15 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 10.5 percent on the company's stock. a. What is the current stock price? b. What will the stock price be in 3 years? c. What will the stock price be in 15 years?

a) Current price = D1/(Required return-Growth rate) =(2.15*1.04)/(0.105-0.04) =$34.4 A=P(1+r/100)^n A=future value P=present value r=rate of interest n=time period. b)A=$34.4*(1.04)^3 =$38.70 c) A=$34.4*(1.04)^15 =$61.95

The next dividend payment by Savitz, Inc., will be $2.16 per share. The dividends are anticipated to maintain a growth rate of 5 percent forever. The stock currently sells for $44 per share. a. What is the dividend yield? b. What is the expected capital gains yield?

a) Dividend Yield = Dividend for Next Period/Current Price Dividend Yield = $2.16/$44 Dividend Yield = 4.9% b) Capital Gains Yield = Growth Rate Capital Gains Yield = 5%

The next dividend payment by Savitz, Inc., will be $2.34 per share. The dividends are anticipated to maintain a growth rate of 4.5 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 = Dividend/Current Price DY = 2.34/37 DY = 6.32% b) Capital Gain Yield = 4.5%

The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.35 per share on its stock. The dividends are expected to grow at a constant rate of 3 percent per year indefinitely. Investors require a return of 10 percent on the company's stock. a. What is the current stock price? b. What will the stock price be in 3 years? c. What will the stock price be in 15 years?

a) P0 = [(1.35)(1+0.03)]/(0.1-0.03) P0 = $19.89 b) P0 = [(1.35)(1+0.03)^4]/(0.1-0.03) P0 = $21.71 c) P0 = [(1.35)(1+0.03)^16]/(0.1-0.03) P0 = $30.95