504 Words3 Pages

11. If D0 = $1.75, g (which is constant) = 3.6%, and P0 = $32.00, what is the stock’s expected total return for the coming year?
Expected Return= D0 X (1+g)/P0 + g = 1.75 X (1+3.6%)/32 + 3.6% = 9.27%
12. Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell?
=Preference Dividend/ Required Return= $7.5/ 6.5%= $ 115.38
13. The Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company's current stock price, P0?
Required Return= Rfr+ Beta X Risk Premium= 4%+1.15*5%= 9.75%
P0= D0 * (1+g)/ (r-g) = .75 * (1+5.5%)/ (9.75%-5.5%) = $18.62
14. Sorenson Corp.’s expected year-end dividend is D1 = $1.60, its required return is rs = 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?
P0= D1/ Dividend yield= $26.67
P7= P0 *(1+11%)^7= $ 55.36
15. 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 low-risk stock is 9.00%. What is the best estimate of the stock’s current market value?
|Year | Dividend | PV of Dividend |
| 0 | 1.32 | 1.32 |
| 1 | 1.72 | 1.57 |
| 2 | 1.89 | 1.59 |
| 3 | 1.98 | 1.53 |
| | |

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