Project #66938 - FINANCIAL HOMEWORK

1)     Great Wall, Inc. is expected to pay a dividend of $23 per share in one year.  After the dividend is paid, its stock is expected to sell at $314.  If the market capitalization rate is 10%, what is the current stock price?

 

 

 

 

 

 

 

2)     China International does not plow back any earnings and is expected to produce a level dividend stream of $15 a share.  If the current stock price is $120, what is the market capitalization rate?

 

 

 

 

 

 

 

 

3)     Northern United’s earnings and dividends per share are expected to grow indefinitely by 7.5% a year.  If next year’s dividend is $7 and the market capitalization rate is 10%, what is the current stock price?

 

 

 

 

 

 

 

 

                 

4)     Southern United is like Northern United in all respects except for one: Southern United’s growth will stop after year 4.  In year 5 and later, it will pay out all earnings as dividends.  What is Southern United’s stock price?  Assume next year’s earnings per share is $22.

 

 

 

 

 

 

 

 

 

 

 

 

5)     If Northern United (see problem 3) were to distribute all of its earnings, it could maintain a level dividend stream of $22 a share.  How much is the market actually paying per share for growth opportunities?

 

 

 

 

 

 

 

 

 

 

 

6)     Consider the following three stocks:

a.     Stock A is expected to provide a dividend of $17 a share forever, beginning one year from now.

b.     Stock B is expected to pay a dividend of $10 next year.  Thereafter, dividend growth is expected to be 5% a year forever.

c.     Stock C is expected to pay a dividend of $10 next year.  Thereafter, dividend growth is expected to be 15% a year for six years (i.e., through year 7) and zero thereafter.

 

If the market capitalization rate for each stock is 10%, which stock is the most valuable?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7)     Beijing Beauty Products (BBP) is about to pay a dividend of $2.50 per share.  It is a mature company, but future EPS and dividends are expected to grow with inflation, which is forecasted at 3% per year.

a.     What is BBP’s current stock price? The nominal cost of capital is 9.5%.

b.     Redo part (a) using forecasted real dividends and a real discount rate.

 

 

 

 

 

 

 

 

 

 

 

 

8)     Outdoor Adventures’ (OA) current return on equity (ROE) is 16%.  It pays out 40% of earnings as cash dividends (payout ratio = .4).  Current book value per share is $70.  Book value per share will grow as OA reinvests earnings.

 

Assume that the ROE and payout ratio stay constant for the next five years.  After that, competition forces ROE down to 10% and payout ratio increases to 0.75.  The cost of capital is 8%.

 

a.     What are OA’s EPS and dividends next year?  How will EPS and dividends grow in years 2, 3, 4, 5 and subsequent years?

b.     What is OA’s stock worth per share? 

 

 

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Due By (Pacific Time) 04/16/2015 02:50 pm
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