Question
1. Consider a stock issue, which pays an annual dividend of $5.00 per share, does not have a maturity date, and on which the required
1. Consider a stock issue, which pays an annual dividend of $5.00 per share, does not have a maturity date, and on which the required rate of return is 6.02%. market price today is $70.
a) Find the Intrinsic Stock Value b) Is the Stock: overvalued, undervalued or fairly valued.
2. Consider a situation in which we are valuing a share of common stock that we plan to hold for only one year. What will be the value of the stock today if it pays a dividend of $3.00, and the investors required rate of return is 12%? Assume a growth rate over dividends over time of 6%. Today the Market Price of stock is valued at $84.
a) Find the Intrinsic Stock Value b) Is the Stock: overvalued, undervalued or fairly valued.
3. Suppose we were interested in the price of stock in 5 years (5). The dividend just paid is $2.30 and the growth rate is 5% per year. If we assume that the stock return is 13%. What would be the Price at the end of year 5?
4. Cinck Corp has a stock price of $75 per share. The nest dividend to be paid will be $2.50. the growth rate for the company is a 10%. What is the companys capital gains yield and dividend yield?
5. Sunflower Company has a policy of paying a $10 per share dividend every year. If this policy is to be continued indefinitely. What is the value of a share of stock if the required return is 20%?
6. Benda Corp is considering a cash purchase of ABS Corp Stock. During the year just completed, Benda Corp earned $5 per share and paid Cash Dividends of $2.55 per share until last year. Benda dividends are expected to growth at 5% per year for the next 3 years, after which are expected to growth at 4% per year indefinitely. What is the maximum price per share that Benda Corp should pay for ABS Stock if it has a required return of 7% on investments similar to ABS Stock?
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