Question

1. Stock Values

Courageous, Inc. just paid a dividend of $1.80per share on its stock. The dividends are expected to grow at a constant rate of 3 percent per year, indefinitely. If investors require a 12 percent return on Courageous stock, what is the current price? What will the price be in 3 years? In 15 years?

PART A:
Current Price: $____________.

PART B:
Price in Three Years: $____________.

PART C:
Price in Fifteen Years: $____________.

#4 Stock Values
The next dividend payment by ASAP, Inc., will be $2.00 per share. The dividends are anticipated to maintain a 4  percent growth rate, forever. If ASAP stock currently sells for $14.75 per share, what is the required return?
Required Return: ____________%

For the company in the previous problem, what is the dividend yield? What is the expected capital gains yield?

PART A:
Dividend yield: ____________%

PART B:
Capital Gains Yield: ____________%

#7 Stock Values

Calphony Corporation will pay a $4.00 per share dividend next year. The company pledges to increase its dividend by 5.00 percent per year, indefinitely. If you require a 12 percent return on your investment, how much will you pay for the company's stock today?
Current stock price: $ ____________.

#8 Stock Valuation
Suppose you know that a company s stock currently sells for $60 per share and the required return on the stock is 17 percent. You also know that the total return on the stock is evenly divided between capital gains yield and dividend yield. If it is the company s policy to always maintain a constant growth rate in dividends, what is the current dividend per share?
DPS: $ ____________.

#9

Stock Valuation
Cornwing Corporation pays a constant $4.00 dividend on its stock. The company will maintain this dividend for the next 12 years and will then cease paying dividends forever. If the required return on this stock is 15 percent, what is the current share price?
Current stock price: $ ____________.

#10 Valuing Preferred Stock
Bullish, Inc. has an issue of preferred stock outstanding that pays an $8.00dividend every year, in perpetuity. If this issue currently sells for $98 per share, what is the required return?
Required Return: ____________%

#11 Growth Rates
Megavoltage Co. is expected to maintain a constant 5 percent growth rate in its dividends, indefinitely. If the company has a dividend yield of 6.5 percent, what is the required return on the power company's stock?
Required Return: ____________%

#12

Stock Valuation
Magellen Corporation stock currently sells for $56 per share. The market requires an 12 percent return on the firm s stock. If the company maintains a constant 4 percent growth rate in dividends, what was the most recent dividend per share paid on the stock?
DPS: $ ____________.

#13

Stock Quotes You have found the following stock quote for ORF Enterprises, Inc., in the financial pages of today s newspaper. What was the closing price for this stock that appeared in yesterday s paper? If the company currently has 1 million shares of stock outstanding, what was net income for the most recent four quarters?

YTD% r	52 wk Hi	52 wk Lo	Stock	Sym	Div	Yld %	PE	Vol 100s	Last	Net Chg
103.45	55.3	12.68	ORF	ORF	.75	2.5	45	31346	????	5.20

PART A:
Closing price in yesterday s paper: $____________.

PART B:
Net Income for most recent four quarters: $____________.

Answer 1

1]

Stock price = current dividend * (1 + growth rate) / (required return - growth rate)

PART A:
Current Price = $1.80 * (1 + 3%) / (12% - 3%)

Current Price = $20.60

PART B:
Dividend in 3 years = current dividend * (1 + growth rate)3

Dividend in 3 years = $1.80 * (1 + 3%)3

Price in Three Years = $1.80 * (1 + 3%)3 * (1 + 3%) / (12% - 3%)

Price in Three Years = $22.51

PART C:
Dividend in 15 years = current dividend * (1 + growth rate)15

Dividend in 15 years = $1.80 * (1 + 3%)15

Price in Fifteen Years = $1.80 * (1 + 3%)15 * (1 + 3%) / (12% - 3%)

Price in Fifteen Years = $32.09