Exam 9: Stock Valuation

Angelina's made two announcements concerning its common stock today. First,the company announced that its next annual dividend has been set at $2.16 a share. Secondly,the company announced that all future dividends will increase by 4% annually. What is the maximum amount you should pay to purchase a share of Angelina's stock if your goal is to earn a 10% rate of return?

Wilbert's Clothing Stores just paid a $1.20 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 10% rate of return,how much should you expect to pay for 100 shares when you can afford to buy this stock? Ignore trading costs.

The constant dividend growth model: I. assumes that dividends increase at a constant rate forever. II) can be used to compute a stock price at any point of time. III) states that the market price of a stock is only affected by the amount of the dividend. IV) considers capital gains but ignores the dividend yield.

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 3.5% annually thereafter. How much will one share be worth five years from now if the required rate of return is 12%?

The total rate of return earned on a stock is comprised of which two of the following? I. current yield II. yield to maturity III. dividend yield IV. capital gains yield

Weisbro and Sons' common stock sells for $21 a share and pays an annual dividend that increases by 5% annually. The market rate of return on this stock is 9%. What is the amount of the last dividend paid by Weisbro and Sons?

Assume that you are using the dividend growth model to value stocks. If you expect the market rate of return to increase across the board on all equity securities,then you should also expect the:

What are the components of the required rate of return on a share of stock? Briefly explain each component.

The common stock of Eddie's Engines,Inc. sells for $25.71 a share. The stock is expected to pay $1.80 per share next month when the annual dividend is distributed. Eddie's has established a pattern of increasing its dividends by 4% annually and expects to continue doing so. What is the market rate of return on this stock?

A stock you are interested in paid a dividend of $1 last month. The anticipated growth rate in dividends and earnings is 25% for the next 2 years before settling down to a constant 5% growth rate. The discount rate is 12%. Calculate the expected price of the stock.

How much are you willing to pay for one share of stock if the company just paid an $.80 annual dividend,the dividends increase by 4% annually and you require an 8% rate of return?

Martin's Yachts has paid annual dividends of $1.40,$1.75,and $2.00 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 15% rate of return. What is the maximum amount you are willing to pay to buy one share today?

Fred Flintlock wants to earn a total of 10% on his investments. He recently purchased shares of ABC stock at a price of $20 a share. The stock pays a $1 a year dividend. The price of ABC stock needs to _____ if Fred is to achieve his 10% rate of return.

The constant dividend growth model is:

Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend of $3.00 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 13% return on your equity investments?

What is the difference between the enterprise value to EBITDA ratio and the PE ratio?

The Double Dip Co. is expecting its ice cream sales to decline due to the increased interest in healthy eating. Thus,the company has announced that it will be reducing its annual dividend by 5% a year for the next two years. After that,it will maintain a constant dividend of $1 a share. Two weeks ago,the company paid a dividend of $1.40 per share. What is this stock worth if you require a 9% rate of return?

BC 'n D just paid its annual dividend of $.60 a share. The projected dividends for the next five years are $.30,$.50,$.75,$1.00,and $1.20,respectively. After that time,the dividends will be held constant at $1.40. What is this stock worth today at a 6% discount rate?

Martha's Vineyard recently paid a $3.60 annual dividend on its common stock. This dividend increases at an average rate of 3.5% per year. The stock is currently selling for $62.10 a share. What is the market rate of return?

The current yield on Alpha's common stock is 5.2%. The company just paid a $2.10 dividend. The rumor is that the dividend will be $2.3 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?