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Stocks and Their Valuation Problems
11. Stock Values MegaCapital, Inc., just paid a dividend of $2.00 per share on its stock. The dividends are expected to grow at a constant 6 percent per year indefinitely. If investors require a 13 percent return on MegaCapital stock, what is the current price? What will the price be in 3 years? Answer: P0=$30.29 P3=$36.07
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Stocks and Their Valuation Problems
12. Stock Values SAF, Inc.’s next dividend payment will be $3.00 per share. The dividends are anticipated to maintain a 5 percent growth rate forever. If SAF stock currently sells for $70.50 per share, what is the required return? Answer: 9.26%
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Stocks and Their Valuation Problems
17. Stock Valuation Jordan’s Jalopies pays a constant $5.00 dividend on its stock. The company will maintain this dividend for the next 7 years, and then cease paying any more dividends forever. If the required return on this stock is 12 percent, what is the current share price? Answer: $22.82
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Stocks and Their Valuation Problems
30. Nonconstant Growth Harry’s Hat Shop is a young start-up company. No dividends will be paid on the stock over the next five years, because the firm needs to plow back its earnings to fuel growth. The company will then begin paying a $2.00 per share dividend, and will increase the dividend by 7 percent per year thereafter. If the required return on this stock is 14 percent, what is the current share price? Answer: $14.84
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Stocks and Their Valuation Problems
34. Supernormal Growth PerfectSoft Corp. is experiencing rapid growth. Dividends are expected to grow at 30 percent per year during the next three years, 20 percent over the following year, and then 6 percent per year indefinitely. The required return on this stock is 15 percent, and the stock currently sells for $42.50 per share. What is the projected dividend for the coming year? Answer: $2.39
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Stocks and Their Valuation Problems
35. Negative Growth Ancient Items Co. is a mature manufacturing firm. The company just paid a $4.00 dividend, but management expects to reduce this payout by 6 percent per year indefinitely. If you require a 15 percent return on this stock, what will you pay for a share today? Answer: $17.90
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Stocks and Their Valuation Problems
45. Nonconstant Growth Kardassian Ice Cream Co. just paid a dividend of $6.75 per share. The company will increase its dividend by 25 percent next year, and then will reduce this dividend growth rate by 5 percent a year until it reaches the industry average of 5 percent, after which the company will keep a constant growth rate forever. If the required return on Kardassian stock is 13.75 percent, what will a share of stock sell for today? Answer: $122.61
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