Fin515 Essay

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 | | | |