1. Stock Values. Banya, Inc., just paid a dividend of $2.20 per share on its stock. The dividends ate expected lo grow at a constant rate of 4 percent per year, indefinitely. If investors require an 11 percent return on Banya stock, what is the current price? What will the price be in three years? In 15 years?
2. Stock Values. The next dividend payment by Carroll, Inc., will be $1.90 per share. The dividends are anticipated to maintain a 5.5 percent growth rate, forever. If the stock currently sells for $47.00 per share, what is the required return? ■
3. Stock Values. For the company in the previous problem, what is the dividend yield? What is the expected capital gains yield?
4." Stock Values. Diamond Corporation will pay a S3.75 per share dividend next year. The company pledges to increase its dividend by 5.5 percent per year, indefinitely. If you require a 12 percent return on your investment, how much will you pay for the company's slock today?
5. Stock Valuation. Pearl, Inc., is expected to maintain a constant 6.3 percent growth rate in its dividends, indefinitely. If the company has a dividend yield of 3.4 percent, what is the required return on the company's stock?
6. Stock Valuation. Suppose you know that a company's stock currently sells for $75 per share and the required return on the stock is 11 percent. You also know that the total return on the stock is evenly divided between capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?
7." Stock Valuation. Golden Coip. pays a constant $17 dividend on its stock. The company will maintain this dividend for the next eight years and will then cease paying dividends forever. If the required return on this stock is 11 percent, what is the current share price?
8. Valuing Preferred Stock. Gesto. Inc.. has an issue of preferred stock outstanding that pays a $5 dividend every year, in perpetuity. If this issue currently sells for $84.12 per share, what is the required return?
9. Voting Rights. After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Cornwall Enterprises. Unfortunately you will be the only individual voting for you. If Cornwall has 300.000 shares outstanding and the stock currently sells for $63, how much will it cost you to buy a seat if the company uses straight voting? Assume that Cornwall uses cumulative voting and there are four seats in the current election; how much will it cost you to buy a seat now?
10. Growth Rates. The stock price of Retro Co. is $65. Investors require a 12 percent rate of return on similar stocks. If the company plans to pay a dividend of S3.80 next year, what growth rate is expected for the company's stock price?
11. Valuing Preferred Stock. E-Eyes.com has a new issue of preferred Stock it calls 20/20 preferred. The stock will pay a $20 dividend per year, but the iirst dividend will not be paid until 20 years from today. If you require an 8 percent return on this stock, how much should you pay today?
12. Stock Valuation. Barnard Corp. will pay a dividend of S3.05 next year. The company has stated that it will maintain a constant growth rate of 5 percent a year forever. If you want a 15 percent rate of return, how much will you pay for the stock? What if you want a 10 percent rate of return? What does this tell you about the relationship between the required return and the stock price?
13. Nonconstant Growth. Metallica Bearings. Inc., is a young starl-up company. No dividends will be paid on the stock over the next six years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a $9 per share dividend in year 7 and will increase the dividend by 5 percent per year thereafter. If the required return on this stock is 13 percent, what is the current share price?
14. Nonconstant Dividends. Hetlield and Ulrich, Inc., has an odd dividend policy. The company has just paid a dividend of $7 per share and has announced that it will increase the dividend by $5 per share for each of the next four years, and then never pay another dividend. If you require a 14 percent return on Ihe company's stock, how much will you pay for a share today?
15. Nonconstant Dividends. Stone Sour Corporation is expected to pay the following dividends over the next four years; $8, $13, $15, and $2.50. Afterwards, the company pledges to maintain a constant 5 percent growth rate in dividends, forever. If the required return on the stock is 11 percent, what is the current share price?
16. Supernormal Growth. Through the Glass Corp. is growing quickly. Dividends are expected to grow at a 20 percent rate for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 13 percent and the company just paid a S3.05 dividend, what is the current share price? Hint: Calculate the first four dividends.
17. Negative Growth. Antiques 'R' Us is a mature manufacturing firm. The company just paid a S7 dividend, but management expects to reduce the payout by 5 percent per year, indefinitely. If you require a 10 percent return on this stock, what will you pay for a share today?
18. Finding the Dividend. Malta Corporation stock currently sells for $72 per share. The market requires an 11 percent return on the firm's stock. If the company maintains a constant 6.5 percent growth rate in dividends, what was the most recent dividend per share paid on the stock?
You've collected the following information from your favorite financial Web site. Use it to answer Questions 19-23 (the 52-week Hi and Lo are the highest and lowest stock prices over the previous 52 weeks).
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