CLASS / COURSE: Finance

QUESTION DESCRIPTION:

1.  A share of common stock just paid a dividend of $1.00.  If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 11.4%, what is the stock price?

2. A stock will pay a dividend of $1.50 this year.  The required rate of return is r = 10.1%, and the constant growth rate is g = 4.0%.  What is the current stock price?

3. Francis Inc.'s stock has a required rate of return of 10.25%, and it sells for $57.50 per share.  The dividend is expected to grow at a constant rate of 6.00% per year.  What is the expected year-end dividend, D₁?

4. Sorenson Corp.’s expected year-end dividend is D₁ = $1.60, its required return is r = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future.  What is Sorenson's expected stock price in 7 years, i.e., what is P₇?

5. Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product.  Management expects sales and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in sales and dividends to zero, i.e., g = 0.  The company’s last dividend, D₀, was $1.25, required rate of return on the stock is 9.60%.  What is the current price of the common stock?

6. (Extra Credit). Nachman Industries just paid a dividend of D₀ = $1.32.  Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter.  The required return on this stock is 9.00%.  What is the best estimate of the stock’s current market value?

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SUBJECTS / CATEGORIES:
1. Finance
2. Financial Management
3. Accounting
4. Corporate Finance
5. Investment and Portfolio Management