Question

Consider the following three stocks: Stock A is expected to provide a dividend of $11.10 a share forever. Stock B is expected to pay a dividend of $6.10 next year. Thereafter, dividend growth is expected to be 5.00% a year forever. Stock C is expected to pay a dividend of $4.90 next year. Thereafter, dividend growth is expected to be 21.00% a year for five years (i.e., years 2 through 6) and zero thereafter.

a-1. If the market capitalization rate for each stock is 11.00%, what is the stock price for each of the stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

a-2. Which stock is the most valuable? Stock C Stock A Stock B

b-1. If the market capitalization rate for each stock is 8.00%, what is the stock price for each of the stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer #1

Consider the following three stocks:
Stock A is expected to provide a dividend of $11.40 a share
forever.
Stock B is expected to pay a dividend of $6.40 next year.
Thereafter, dividend growth is expected to be 2.00% a year
forever.
Stock C is expected to pay a dividend of $4.60 next year.
Thereafter, dividend growth is expected to be 18.00% a year for
five years (i.e., years 2 through 6) and zero thereafter.
a-1. If the market capitalization rate...

Here are forecasts for next year for two stocks:
Stock A
Stock B
Return on equity
15
%
14
%
Earnings per share
$
2.00
$
1.50
Dividends per share
$
1.00
$
1.00
a. What are the dividend payout ratios for each
firm? (Do not round intermediate calculations. Enter your
answers as a percent rounded to the nearest whole
number.)
b. What are the expected dividend growth rates for
each stock? Assume dividend has a steady growth for both...

Here are forecasts for next year for two stocks:
Stock A
Stock B
Return on equity
12
%
10
%
Earnings per share
$
4.00
$
3.50
Dividends per share
$
3.00
$
3.00
a. What are the dividend payout ratios for each
firm? (Do not round intermediate calculations. Enter your
answers as a percent rounded to the nearest whole
number.)
payout ratio %
Stock A
Stock B
b. What are the expected dividend growth rates
for each stock? Assume...

Consider four different stocks, all of which have a required
return of 16 percent and a most recent dividend of $2.80 per share.
Stocks W, X, and Y are expected to maintain constant growth rates
in dividends for the foreseeable future of 8 percent, 0 percent,
and −5 percent per year, respectively. Stock Z is a growth stock
that will increase its dividend by 20 percent for the next two
years and then maintain a constant 12 percent growth rate,...

Consider four different stocks, all of which have a required
return of 18.25 percent and a most recent dividend of $3.60 per
share. Stocks W, X, and Y are expected to maintain constant growth
rates in dividends for the foreseeable future of 10 percent, 0
percent, and –5 percent per year, respectively. Stock Z is a growth
stock that will increase its dividend by 20.25 percent for the next
two years and then maintain a constant 12 percent growth rate,...

a. Computer stocks currently provide an expected rate of return
of 18%. MBI, a large computer company, will pay a year-end dividend
of $2 per share. If the stock is selling at $50 per share, what
must be the market's expectation of the growth rate of MBI
dividends? (Do not round intermediate calculations. Round your
answer to 2 decimal places.) Growth rate % b-1. If dividend growth
forecasts for MBI are revised downward to 2% per year, what will be...

The expected pretax return on three stocks is divided between
dividends and capital gains in the following way:
Stock
Expected Dividend
Expected Capital Gain
A
$0
$10
B
5
5
C
10
0
a. If each stock is priced at $175, what are
the expected net percentage returns on each stock to (i) a pension
fund that does not pay taxes, (ii) a corporation paying tax at 45%
(the effective tax rate on dividends received by corporations is
10.5%), and...

(Stocks) A stock with a beta of 1.36 is expected to pay a $1.57
dividend over the next year. The dividends are expected to grow at
2.33% per year forever. What is the stock's value per share (to the
nearest cent, no $ symbol) if the risk-free rate is 0.21% and the
market risk premium (i.e., the difference between the market return
and the risk-free rate) is 7.79%? Note: You first need to find the
required rate of return (r)...

Newkirk, Inc., is expected to pay equal dividends at the end of
each of the next two years. Thereafter, the dividend will grow at a
constant annual rate of 4.1 percent, forever. The current stock
price is $46. What is next year’s dividend payment if the required
rate of return is 12 percent? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g.,
32.16.)
dividend payment=

Problem 18-20
The Duo Growth Company just paid a dividend of $1.00 per share.
The dividend is expected to grow at a rate of 23% per year for the
next three years and then to level off to 5% per year forever. You
think the appropriate market capitalization rate is 18% per
year.
a. What is your estimate of the intrinsic value of
a share of the stock? (Use intermediate calculations
rounded to 4 decimal places. Round your answer to...

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