Question

16. The Row Boat has paid annual dividends of $.48, $0.60, and $0.62 a share over...

16. The Row Boat has paid annual dividends of $.48, $0.60, and $0.62 a share over the past three years, respectively. The company now predicts that it will maintain a constant dividend since its business has leveled off and sales are expected to remain relatively constant. Given the lack of future growth, you will only buy this stock if you can earn at least a 14 percent rate of return. What is the maximum amount you are willing to pay for one share of this stock today?
A. $3.43
B. $4.43
C. $5.05
D, $5.60

18. The current yield on Martin's Mills common stock is 3.6 percent. The company just paid a $1.80 dividend and plans to pay $1.86 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock?
A. 3.72 percent
B. 4.08 percent
C. 5.69 percent
D.7.05 percent

17. The common stock of BJ's Auto Clinic sells for $38.25 a share. The stock is expected to pay $1.90 per share next month when the annual dividend is distributed. BJ's has established a pattern of increasing their dividends by 2.5 percent annually and expects to continue doing so. What is the market rate of return on this stock?
A. 4.41 percent
B. 4.97 percent
C. 7.38 percent
D. 7.59 percent

Please help me answer all questions

Homework Answers

Answer #1

1.
The maximum amount you are willing to pay for one share of this stock today = D1 / (r - g)
= $0.62 / (0.14 - 0)
= $0.62 / 0.14
= $4.43

The maximum amount you are willing to pay for one share of this stock today = $4.43


2.
P0 = D0 / current yield = $1.80 / 3.6% = $50

Growth rate = ($1.86 - $1.80) / $1.80 = 3.33%

Required return = (D1 / P0) + g
= ($1.86 / $50) + 3.33%
= 3.72% + 3.33%
= 7.05%

Require rate of return = 7.05%

3.
Market rate of return = (D1 / P0) + g
= ($1.90 / $38.25) + 2.5%
= 4.97% + 2.5%
= 7.47%


Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. XYZ Inc. has paid annual dividends of $.48, $0.60, and $0.62 a share over the...
1. XYZ Inc. has paid annual dividends of $.48, $0.60, and $0.62 a share over the past three years, respectively. The company plans to maintain a constant dividend in the future. If the required rate of return is 14% for such stock with no growth potential, how much is the price per share you are willing to pay? Answer: _____ ( round to 2 decimal places) 2. ABC pays a constant dividend of $0.75 a share. The company announced today...
The OWB Company paid $2.1 of dividends this year. If its dividends are expected to grow...
The OWB Company paid $2.1 of dividends this year. If its dividends are expected to grow at a rate of 3 percent per year, what is the expected dividend per share for OWB five years from today? The current price of ABC stock is $35 per share. If ABC’s current dividend is $1.5 per share and investors ‘required rate of return is 10 percent, what is the expected growth rate of dividends for ABC. Use constant dividend growth model. Consider...
A company just paid an annual dividend of $5.00 per share on its common stock. Due...
A company just paid an annual dividend of $5.00 per share on its common stock. Due to the success of a new product, the firm expects to achieve a dramatic increase in its short-term growth rate in sales to 30 percent annually for the next three years. After this time, the growth rate in sales is expected to return to the long-term constant rate of 6 percent per year. Assume that the company’s dividend growth rate matches the rate of...
ABC Inc., will pay no dividends over the next 13 years because the firm needs to...
ABC Inc., will pay no dividends over the next 13 years because the firm needs to retain its earnings for growth purposes. The company will pay an $4 per share dividend in 14 years and will increase the dividend by 4 percent per year thereafter. If the required return on this stock is 9 percent, what is the current (t=0) share price? ABC Inc. just paid a dividend of $1.75 per share. The company will increase its dividend by 28...
Antonius and Cleo, LLC just paid an annual dividend of $1.26 last month. The required return...
Antonius and Cleo, LLC just paid an annual dividend of $1.26 last month. The required return is 14.6 percent and the growth rate is 3.1 percent. What is the expected value of this stock 11 years from now? Cerberus Undertakers, Inc. just paid an annual dividend of $1.34 and is expected to pay annual dividends of $1.96 and $2.56 per share the next two years, respectively. After that, the firm expects to maintain a constant dividend growth rate of 5.7...
The share of a certain stock paid a dividend of Rs. 2 last year. The dividend...
The share of a certain stock paid a dividend of Rs. 2 last year. The dividend is expected to grow at a constant rate of 7 percent in the future. The required rate of return on this stock is considered to be 14 %. How much should this stock sell for now assuming that the expected growth rate and required rate of return remain the same. At what price should the stock sell 4 years hence ?
At the end of the year 2016 Brown Bear Corporation paid dividends $2.82 per share. The...
At the end of the year 2016 Brown Bear Corporation paid dividends $2.82 per share. The company projects the following annual growth rates in dividends: Year Growth Rate 2017 13% 2018 13% 2019 13% 2020 9% 2021 9% 2022 4% From year 2023 onward growth in dividends is expected to remain constant at 3% per year. The required rate of return for this stock is 9.52%. Calculate the economic value of the stock now (end of the Year 2016).
A fast growth share has the first dividend (t=1) of $2.61. Dividends are then expected to...
A fast growth share has the first dividend (t=1) of $2.61. Dividends are then expected to grow at a rate of 10 percent p.a. for a further 3 years. It then will settle to a constant-growth rate of 2.1 percent. . If the required rate of return is 19 percent, what is the current price of the share? (to the nearest cent)
Could I Industries just paid a dividend of $1.32 per share. The dividends are expected to...
Could I Industries just paid a dividend of $1.32 per share. The dividends are expected to grow at a rate of 17.5 percent for the next five years and then level off to a growth rate of 6 percent indefinitely. If the required return is 14 percent, what is the value of the stock today?
Hewlett-Packard’s (HP) expected dividends for the coming year are $0.60 and expected earnings per share are...
Hewlett-Packard’s (HP) expected dividends for the coming year are $0.60 and expected earnings per share are $0.80. The required rate of return for HP is 15%. HP’s ROE is 18% and plowback ratio is 25%. Using the constant-growth dividend discount method, calculate the firm’s intrinsic value. (10 points) Calculate the present value of growth opportunities for HP. (10 points) Suppose you found a positive PVGO for HP. In this case, should the firm continue with its current dividend policy or...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT