Question

You are considering the purchase of stock XYZ. XYZ pays a dividend of $1.00 and expects to grow dividends by 6.0% each year. A stock of similar risk, ABC, currently trades at $55.79, pays a dividend of $3.25 per share, and expects to grow dividends by 3.0% each year.

- Determine the fair market price of stock XYZ, using the given data from stock ABC.

Answer #1

Fair Market Price of stock XYZ is $35.33

Cost of capital has been calculated from the given data of ABC stock

XYZ Manufacturing is considering a cash purchase of the stock of
PNQ Corp. During the year just completed, PNQ earned $3.50 per
share and paid cash dividends of $2.40 per share. PNQ’s earnings
and dividends are expected to grow at 15% per year for the next
four years, after which they are expected to grow at 5% per year to
infinity. Assume that PNQ has a required return of 10% on
investments with risk characteristics similar to those of
PNQ....

XYZ Manufacturing is considering a cash purchase of the stock of
PNQ Corp. During the year just completed, PNQ earned $3.50 per
share and paid cash dividends of $2.40 per share. PNQ’s earnings
and dividends are expected to grow at 15% per year for the next
four years, after which they are expected to grow at 5% per year to
infinity. Assume that PNQ has a required return of 10% on
investments with risk characteristics similar to those of
PNQ....

Assume you are considering a stock which oddly pays a dividend
at the end of each year. Your required rate of return is 8.5%. The
expected dividend at the end of year 1 is $5.50. In year 2, the
dividend is expected to grow by 11%. The year after that, the
dividend is expected to be up 12%. In year 4 and 5 it is expected
to grow at 15%. (1) If your holding period for this stock is 5...

The preferred stock of Company A pays a constant $1.00 per share
dividend. The common stock of Company B just paid a $1.00 dividend
per share, but its dividend is expected to grow at 4 percent per
year forever. Company C common stock also just paid a dividend of
$1.00 per share, but its dividend is expected to grow at 10 percent
per year for five years and then grow at 4 percent per year
forever. All three stocks have...

You are considering an investment in a stock, which is expected
to pay a dividend of $1.50 a share at the end of the year
(D1 = $1.50) and has a beta of 0.9. The risk-free rate
is 2.6%, and the market risk premium is 6.0%. The company currently
sells for $39.00 a share, and its dividend is expected to grow at
some constant rate, g. Assuming the market is in equilibrium, what
does the market believe will be the...

(i) Your broker recommends that you purchase XYZ Inc. at
$60. The stock pays a $2.40 dividend which is expected to grow
annually at 8 percent. If you want to earn 12 percent on your
funds, is this a good buy?
(ii) Presently, Stock A pays a dividend of $2.00 a
share, and you expect the dividend to grow rapidly for the next
four years at 20 percent. Thus the dividend payments will
be
Year
Dividend
1
$1.20
2
1.44...

The Red River just paid a dividend of Do = $1.00 per
share, and that dividend is expected to grow at a constant rate of
7.00% per year in the future. The company's beta is 1.30, the
market risk premium is 6.0%, and the risk-free rate is 5.00%. What
is the company's current stock price?
$18.45
$17.62
$16.36
$15.12
$14.31

ABC Corporation expects to pay a dividend of $2 per share next
year, and the dividend payout ratio is 80 percent. Dividends are
expected to grow at a constant rate of 8 percent forever.Suppose
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and the risk free rate is 5%. Calculate the present value of growth
opportunities.

ABC Corporation expects to pay a dividend of $2 per share next
year, and the dividend payout ratio is 80 percent. Dividends are
expected to grow at a constant rate of 8 percent forever.Suppose
the company's equity beta is 1.21, the market risk premius is 9%,
and the risk free rate is 5%. Calculate the present value of growth
opportunities.

You are considering an investment in Justus Corporation's stock,
which is expected to pay a dividend of $2.00 a share at the end of
the year (D1 = $2.00) and has a beta of 0.9. The
risk-free rate is 4.3%, and the market risk premium is 5%. Justus
currently sells for $48.00 a share, and its dividend is expected to
grow at some constant rate, g. Assuming the market is in
equilibrium, what does the market believe will be the...

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