1. Constant growth dividend model For Post Inc., the required rate of return is 12% and the growth rate is 7%. The expected dividend at the end of 2020 is $2.15.

a) Compute the present value of Post's stock price with the appropriate assumptions.

b) If the required rate of return and the dividend remain the same, but the growth rate increases up to 8 percent, what will happen with the stock price? Explain the reason for the change.

c) If the dividend and the growth rate remain the same, but the required rate of return increases to 14%, what will happen to the stock price? Explain the reason for the change.

2. P/E ratio analysis For the period 2010 - 2019, the average high and low P/E for Post Inc. is 15.25 and 10. 25, respectively. a) Assume that analysts determine that Post Inc.'s P/E ratio is 2020 should be 7 percent above the average high Post Inc. P/E ratio for the last 10 years. If the projected earnings per share are $2.15 for 2020, what would be the stock price?

b) Assume that analysts determine that Post Inc.'s P/E ratio is 2020 should be 15 percent below the average low Post Inc. P/E for the last 10 years. What would the stock price be based on the anticipated earnings per share of $1.50?

3. Combining Du Pont analysis with P/E ratios Assume you are analyzing two stocks in the travel and leisure industry. You intentionally assign a P/E of 20 to the average firm in the industry. However, you will assign a 25 percent premium to the P/E of a company that uses conservative financing in its capital structure. This is because of the highly cyclical nature of the industry. Two firms in the industry have the following financial data:

Criteria Net Income/Sales Sales/Total Assets Debt/ Total Assets Earnings Shares ABC Travel Corp. 5.2% 2.5x 55% $45 million $18 million XYZ Travel Inc. 4.5% 3.1x 35% $17 million $7 million

a) Compute return on stockholders' equity for each firm. Use the Du Pont Method of analysis. Which is higher?

b) Compute earnings per share for each company. Which is higher?

c) Applying the 20 percent premium to the P/E ratio of the firm with the more conservative financial structure and the industry P/E ratio of the other firm, which firm has the higher stock price valuation?

Looking for the answers to check mine not the explanations.