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Chapter 94. Stock Values. White Wedding Corporation will pay $3.05 per share dividend next year. The company pledges to increase its dividends by 5.25 percent per year, indefinitely. If you require an 11 percent return on your investment, how much will you pay for the company’s stock today?6. Stock Valuation. Suppose you know that a company’s stock currently sells for $64 per share and the required return on the stock is 13 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it’s the company’s policy to always maintain a constant growth rate in its dividends, what is the current dividend per share? 10. Stock Valuation: Universal Laser, Inc., just paid a dividend of $2.75 on its stock. The growth rate in dividends is expected to be a constant 6 percent per year, indefinitely. Investors require a 16 percent return on the stock for the first three years, a 14 percent return for the next three years, and then an 11 percent return thereafter. What is the current share price for the stock? 13. Non-constant Dividends: North Side Corporation is expected to pay the following dividends over the next four years: $9, $7, $5, and $2.50. Afterwards, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 13 percent, what is the current share price? 17. Finding the Dividend. Mau Corporation stock currently sells for $49.80 per share. The market requires an 11 percent return on the firm’s stock. If the company maintains a constant 5 percent growth rate in dividends, what was the most recent dividend per share paid on the stock? 23. Juggernaut Satellite Corporation earned $10 million for the fiscal year ending yesterday. The firm also paid out 20 percent of its earnings as dividends yesterday. The firm will continue to pay out 20 percent of its earning as annual, end-of-year dividends. The remaining 80 percent of earning is retained by the company for use in projects. The company has 2 million shares of common stock outstanding. The current stock price is $85. The historical return on equity (ROE) of 16 percent is expected to continue in the future. What is the required rate of return on the stock?25. Consider Pacific Energy Company and U.S. Blue chips, Inc., both of which reported earnings of $750,000. Without new projects, both firms will continue to generate earnings of $750,000 in perpetuity. Assume that all earnings are paid as dividends and that both firms require a 14 percent rate of return. a. What is the current PE ratio for each company? b. Pacific Energy Company has a new project that will generate additional earnings of $100,000 each year in perpetuity. Calculate the new PE ratio of the company. c. U.S. Bluechips has a new project that will increase earnings by $200,000 in perpetuity. Calculate the new PE ratio of the firm. Chapter 104. Suppose you bought an 8 percent coupon bond one year ago for $1,090. The bond sells for $1,056 today. a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?b. What was your total nominal rate of return on this investment over the past year? c. If the inflation rate last year was 3 percent, what was your total real rate of return on this investment? 15. You bough a stock three months ago for $75.15 per share. The stock paid no dividends. The current share price is $82.01. What is the APR of your investment? The EAR?25. Assuming that the returns from holding small-company stocks are normally distributed, what is the approximate probability that your money will double in value in a single year? Triple in value? 28. Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Based on the historical record, use the NORM-DIST function in Excel to answer the following questions. a. What is the probability that in any given year, the return on long-term corporate bonds will be greater than 10 percent? Less than 0 percent? b. What is the probability that in any given year, the return on T-bill will be greater than 10 percent? Less than 0 percent? c. In 1979, the return on long-term corporate bonds was -4.18 percent. How likely is it that this low of a return will recur at some point in the future? T-bills had a return of 10.56 percent this same year. How likely is it that this high of a return on T-bills will recur at some point in the future?
28 abc25 #MACRO?#MACRO?#MACRO?
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