Project #42457 - Chapter 8

1. 

Your discount brokerage firm charges $8.40 per stock trade.

 

How much money do you need to buy 260 shares of Pfizer, Inc. (PFE), which trades at $33.82? (Round your answer to 2 decimal places.)

 

  Amount needed

  

 

 

2. 

Consider a firm that had been priced using a 10 percent growth rate and a 12 percent required return. The firm recently paid a $1.20 dividend. The firm just announced that because of a new joint venture, it will likely grow at a 10.5 percent rate.

 

How much should the stock price change (in dollars and percentage)? (Round your answers to 2 decimal places.)

  

   
  Change in stock price       
  Change in stock percent  %  

3. 

Suppose that a firm’s recent earnings per share and dividend per share are $3.10 and $2.50, respectively. Both are expected to grow at 7 percent. However, the firm’s current P/E ratio of 26 seems high for this growth rate. The P/E ratio is expected to fall to 22 within five years.

  

Compute the dividends over the next five years. (Do not round intermediate calculations and round your final answers to 3 decimal places.)

  

  Dividends Years
  First year   
  Second year   
  Third year   
  Fourth year   
  Fifth year   

  

Compute the value of this stock price in five years. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

  

  Stock price   

  

Calculate the present value of these cash flows using a 9 percent discount rate. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

  

  Present value   

 

 

4. 

Financial analysts forecast Safeco Corp.’s (SAF) growth rate for the future to be 13 percent. Safeco’s recent dividend was $1.70.

  

What is the value of Safeco stock when the required return is 15 percent?

  

  Value of stock

  

 

 

5. 

Your discount brokerage firm charges $8.35 per stock trade.

 

How much money do you need to buy 350 shares of Time Warner, Inc. (TWX), which trades at $28.12?(Round your answer to 2 decimal places.)

 

  Amount needed   

 

 

6. 

A firm recently paid a $0.60 annual dividend. The dividend is expected to increase by 12 percent in each of the next four years. In the fourth year, the stock price is expected to be $42.

  

If the required return for this stock is 14.50 percent, what is its current value? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

  

  Current value   

 

 

7. 

A firm is expected to pay a dividend of $1.95 next year and $2.10 the following year. Financial analysts believe the stock will be at their price target of $70 in two years.

 

Compute the value of this stock with a required return of 11.9 percent. (Round your answer to 2 decimal places.)

 

  Value of stock   

 

8. 

You would like to buy shares of Sirius Satellite Radio (SIRI). The current ask and bid quotes are $4.18 and $4.15, respectively. You place a market buy order for 590 shares that executes at these quoted prices.

 

How much money did it cost to buy these shares? (Round your answer to 2 decimal places.)

  

  Cost of shares    

 

9. 

 A preferred stock from Hecla Mining Co. (HLPRB) pays $3.70 in annual dividends.

 

If the required return on the preferred stock is 6.70 percent, what is the value of the stock? (Round your answer to 2 decimal places.)

 

  Value of stock   

 

10. 

Ecolap Inc. (ECL) recently paid a $0.50 dividend. The dividend is expected to grow at a 14.50 percent rate. The current stock price is $52.12.

  

What is the return shareholders are expecting? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

  

  Shareholders return  %  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Due By (Pacific Time) 10/10/2014 12:00 am
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