Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. A stock currently has a market price per share of $25. The stocks last cash dividend was $2 per share; the companys earnings and

1. A stock currently has a market price per share of $25. The stocks last cash dividend was $2 per share; the companys earnings and dividends are expected to increase at a constant growth rate of 10% annually. Your required rate of return on this stock is 20%. From a strict valuation standpoint, is this stock fairly valued, undervalued or overvalued? Show all work.

2. ABCs last annual cash dividend was $1.50 per share. Its current equilibrium share market price is $15.75. The company is expected to grow at an annual rate of 5%. If your required rate of return is 15%, calculate for the coming year

(a) the expected dividend yield and

(b) the expected capital gains yield.

3. XYZ is in an extremely competitive market, competing with the likes of China and India. Financial analysts predict that both earnings and dividends will probably decline at a rate of 5% annually into the foreseeable future. If XYZs last annual dividend was $2 per share, and if investors required rate of return is 15%, calculate XYZs share price in three years time.

4. JNJs stock is currently selling at $45.83 per share. The last cash dividend paid to shareholders of record was $2.50 per share. JNJ is a constant growth firm. If investors require a return of 16% on JNJs stock, what do they believe JNJs annual growth rate to be?

5. Adelphia, Inc. has 100,000 shares of preferred stock outstanding; the stocks par value is $50 per share. The stock pays a quarterly cash dividend of $1.25 per share. The current market price of Adelphia is $71.43. Calculate the nominal rate of return on Adelphias preferred stock.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introductory Econometrics For Finance

Authors: Chris Brooks

3rd Edition

1107661455, 9781107661455

More Books

Students also viewed these Finance questions

Question

In-between modifi ers appear more frequently in false statements.

Answered: 1 week ago