Project #93505 - Finance Homework

 

Fill in the blanks:

 

1 Favored stock will pay a dividend this year of $1.76 per share. Its dividend yield is 8%. At what price is the stock selling? (Do not round intermediate calculations.)

 

  Current price

$

 

2 Preferred Products has issued preferred stock with an annual dividend of $7.92 that will be paid in perpetuity.

 a.

If the discount rate is 11%, at what price should the preferred sell?

 

   Current price

$  

 

 b.

At what price should the stock sell 1 year from now?

 

  Future price

$  

 

c.

What is the dividend yield, the capital gains yield, and the expected rate of return of the stock? (Leave no cells blank - be certain to enter "0" wherever required. Enter your answers as a whole percent.)

 

   

 

 

 

  Dividend yield

%  

 

 

  Capital gains yield

%  

 

 

  Expected rate of return

%  

 

 


 

             

2

 

3 Steady As She Goes Inc. will pay a year-end dividend of $2.10 per share. Investors expect the dividend to grow at a rate of 5% indefinitely.

 

a.

If the stock currently sells for $21 per share, what is the expected rate of return on the stock? (Do not round intermediate calculations. Enter your answer as a whole percent.)

 

  Expected rate of return

%  

 

b.

If the expected rate of return on the stock is 17.5%, what is the stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Stock price

$  

 

4 Integrated Potato Chips paid a $1.70 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 5% per year.

 

a.

What is the expected dividend in each of the next 3 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

 

Expected Dividend

  Year 1

$      

  Year 2

    

  Year 3

    


 

b.

If the discount rate for the stock is 11%, at what price will the stock sell today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Current price

$  

 

c.

What is the expected stock price 3 years from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  Future price

$  

 

d.

If you buy the stock and plan to hold it for 3 years, what payments will you receive? What is the present value of those payments? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

d.

If you buy the stock and plan to hold it for 3 years, what payments will you receive? What is the present value of those payments? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

 

    Year 1

 

    Year 2

 

    Year 3

 

  Dividend

$   

 

$   

 

$   

 

  Sale of stock

  

 

  

 

  

 

 


 


 


 

  Total cash flow

$   

 

$   

 

$   

 

 



 



 



 

  PV of cash flow

$   

 

$   

 

$   

 


 

5 Stormy Weather has no attractive investment opportunities. Its return on equity equals the discount rate, which is 5%. Its expected earnings this year are $2 per share. Find the stock price, P/E ratio, and growth rate of dividends for plowback ratios of: (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter the growth rate as a percent rounded to 1 decimal place.)

 

 

Plowback Ratios

     Stock Price

       P/E Ratio

  Growth Rate of
 Dividends

  a.

Zero           

$    

   

%  

  b.

.20           

   

   

%  

  c.

.70           

   

   

%  


 

6 Arts and Crafts, Inc., will pay a dividend of $2 per share in 1 year. It sells at $40 a share, and firms in the same industry provide an expected rate of return of 14%. What must be the expected growth rate of the company’s dividends? (Do not round intermediate calculations. Enter your answer as a whole percent.)

 

  Expected growth rate

%

 

7 No-Growth Industries pays out all of its earnings as dividends. It will pay its next $6 per share dividend in a year. The discount rate is 21%.

 

a.

What is the price-earnings ratio of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

  P/E ratio

 

 

b.

What would the P/E ratio be if the discount rate were 20%? (Round your answer to 2 decimal places.)

 

  P/E ratio

  

Subject Business
Due By (Pacific Time) 11/15/2015 6pm
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