Question

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 that they will continue to pay this for another 3 years after which time they will discontinue operations. What is one share of this stock worth today if the required rate of return is 18 percent? Your answer: $ _________(round to 2 decimal places)

3. XYZ just paid an annual dividend of $1.75. It plans to increase by 2 percent annually every year after. The required rate of return is 14.5%. How much will one share of stock be worth six years from now? $ ________ (round to nearest two decimal places)

4. ABC inc just paid $1.79 to its shareholders as the annual dividend. The future dividends will be increasing by 3.2 percent. If you require a 10.5 percent rate of return, then the stock price per share today is : $_______ (please round to 2 decimal places, enter numbers only )

5. ABC will be growing its dividend rapidly in the next three year at 25% a year. After that, it will maintain 6% annual growth rate. The most recently paid annual dividend is $0.80 per share. What is the current value of one share of this stock if the required rate of return is 17 percent? Answer $______ ( round to two decimal places).

Must show all process & all formula to receive fall credit.

Homework Answers

Answer #1

1)

Stock price (P0) D1÷(r-g)
Here,
Expected dividend (D1) $                           0.70 0.62*(1+13.65%)
Required return ( r) 14.00%
Growth rate (g) 13.65% (0.62/0.48)^(1/2)-1
Stock price (P0) $                      202.20
0.70/(14%-13.65%)
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