chapter-08-stock-valuation

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111. Springboro Tech is a young start-up company. No
dividends will be paid on the stock over the next 15 years, because the firm
needs to plow back its earnings to fuel growth. The company will pay a $12 per
share dividend in 16 years and will increase the dividend by 3 percent per year
thereafter. What is the current share price if the required return on this
stock is 8 percent?
A. $75.66
B. $88.19
C. $120.00
D. $164.59
E. $240.00

112. Galloway, Inc. has an odd dividend policy. The
company has just paid a dividend of $7 per share and has announced that it will
increase the dividend by $2 per share for each of the next 5 years, and then
never pay another dividend. How much are you willing to pay per share today to
buy this stock if you require a 15 percent return?
A. $27.08
B. $34.15
C. $41.72
D. $42.60
E. $43.33

113. Jen’s Fashions is growing quickly. Dividends are
expected to grow at a 22 percent rate for the next 3 years, with the growth
rate falling off to a constant 8 percent thereafter. The required return is 12
percent and the company just paid a $3.80 annual dividend. What is the current
share price?
A. $128.96
B. $131.11
C. $146.17
D. $148.87
E. $152.20

114. Hardwoods, Inc. is a mature manufacturing firm.
The company just paid a $10 dividend, but management expects to reduce the payout
by 9 percent each year, indefinitely. How much are you willing to pay today per
share to buy this stock if you require a 15 percent rate of return?
A. $34.79
B. $37.92
C. $38.27
D. $41.33
E. $42.09

115. Bechtel Machinery stock currently sells for $50
per share. The market requires a 15 percent return on the firm’s stock. The
company maintains a constant 8 percent growth rate in dividends. What was the
most recent annual dividend per share paid on this stock?
A. $3.00
B. $3.24
C. $3.50
D. $3.67
E. $3.91

116. Southern Utilities just issued some new preferred
stock. The issue will pay a $19 annual dividend in perpetuity beginning 9 years
from now. What is one share of this stock worth today if the market requires a
7 percent return on this investment?
A. $157.97
B. $164.16
C. $189.08
D. $241.41
E. $271.43

117. Big Falls Tours just paid a dividend of $1.55 per
share. The dividends are expected to grow at 30 percent for the next 8 years
and then level off to a 7 percent growth rate indefinitely. What is the price
of this stock today given a required return of 15 percent?
A. $67.54
B. $69.90
C. $72.47
D. $77.67
E. $78.19

118. Harvey County Choppers, Inc. is experiencing
rapid growth. The company expects dividends to grow at 25 percent per year for the
next 7 years before leveling off to 7 percent into perpetuity. The required
return on the stock is 12 percent. What is the current stock price if the
annual dividend share that was just paid was $1.05?
A. $60.15
B. $64.36
C. $67.37
D. $72.11
E. $75.19

119. Westover Winds just paid a dividend of $2.50 per
share. The company will increase its dividend by 8 percent next year and will
then reduce its dividend growth rate by 2 percentage points per year until it
reaches the industry average of 2 percent dividend growth, after which the
company will keep a constant growth rate forever. What is the price of this
stock today given a required return of 12 percent?
A. $28.42
B. $28.99
C. $31.83
D. $32.06
E. $32.47

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