Exam 9: Stock Valuation

Lee Hong Imports paid a $1.00 per share annual dividend last week. Dividends are expected to increase by 5% annually. What is one share of this stock worth to you today if the appropriate discount rate is 14%?

The Merriweather Co. just announced that it will pay a dividend next year of $1.60 and is establishing a policy whereby the dividend will increase by 2.5% annually thereafter. How much will one share be worth five years from now if the required rate of return is 15%?

The current yield on Alpha's common stock is 4.8%. The company just paid a $2.10 dividend. The rumor is that the dividend will be $2.205 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on Alpha's stock?

The net present value of a growth opportunity,NPVGO,can be defined as:

NU YU announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $.25 a share. The following dividends will be $.40,$.60,and $.75 a share annually for the following three years,respectively. After that,dividends are projected to increase by 3.5% per year. How much are you willing to pay to buy one share of this stock if your desired rate of return is 12%?

Nu-Tek,Inc. is expecting a period of intense growth and has decided to retain more of its earnings to help finance that growth. As a result it is going to reduce its annual dividend by 10% a year for the next three years. After that,it will maintain a constant dividend of $.70 a share. Last month,the company paid $1.80 per share. What is the value of this stock if the required rate of return is 13%?

Majestic Homes' stock traditionally provides an 7% rate of return. The company just paid a $2 a year dividend which is expected to increase by 4% per year. If you are planning on buying 1,000 shares of this stock next year,how much should you expect to pay per share if the market rate of return for this type of security is 8% at the time of your purchase?

Bet'R Bilt Bikes just announced that its annual dividend for this coming year will be $2.42 a share and that all future dividends are expected to increase by 2.5% annually. What is the market rate of return if this stock is currently selling for $22 a share?

If a company paid a dividend of $0.40 last month and it is expected to grow at 7% for the next 6 years and then grow at 4% thereafter,the dividend expected in year 8 is ______.

The Red Bud Co. just paid a dividend of $1.20 a share. The company announced today that it will continue to pay this constant dividend for the next 3 years after which time it will discontinue paying dividends permanently. What is one share of this stock worth today if the required rate of return is 7%?

Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend of $2.00 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn a 12% return on your equity investments?

Doctors-On-Call,a newly formed medical group,just paid a dividend of $.50. The company's dividend is expected to grow at a 20% rate for the next 5 years and at a 3% rate thereafter. What is the value of the stock if the appropriate discount rate is 12%?

Differential growth refers to a firm that increases its dividend by:

The Robert Phillips Co. currently pays no dividend. The company is anticipating dividends of $0,$0,$0,$.10,$.20,and $.30 over the next 6 years,respectively. After that,the company anticipates increasing the dividend by 4% annually. The first step in computing the value of this stock today,is to compute the value of the stock when it reaches constant growth in year:

The underlying assumption of the dividend growth model is that a stock is worth:

The closing price of a stock is quoted at 22.87,with a P/E of 26 and a net change of 1.42. Based on this information,which one of the following statements is correct?

The Lory Company had net earnings of $127,000 this past year. Dividends of $38,100 were paid. The company's equity was $1,587,500. If Lory has 100,000 shares outstanding with a current market price of $11.625 per share,and the growth rate is 5.6%,what is the required rate of return?

Martin's Yachts has paid annual dividends of $1.70,$1.8,and $2.1 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 10% rate of return. What is the maximum amount you are willing to pay to buy one share today?

The Scott Co. has a general dividend policy whereby it pays a constant annual dividend of $1 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:

Wilbert's Clothing Stores just paid a $1.50 annual dividend. The company has a policy whereby the dividend increases by 2.5% annually. You would like to purchase 100 shares of stock in this firm but realize that you will not have the funds to do so for another three years. If you desire a 15% rate of return,how much should you expect to pay for 100 shares when you can afford to buy this stock? Ignore trading costs.