Question
1. Fama Corp.s current stock price is $36, and its last dividend (D0) was $2.40. The required rate of return for Fama Corp. is 12%.
1. Fama Corp.s current stock price is $36, and its last dividend (D0) was $2.40. The required rate of return for Fama Corp. is 12%. If dividends are expected to grow at a constant rate, g, what is Fama Corp.s expected stock price four years from now?
2. Albanian Technology Corp. (ATC) has been growing at the phenomenal rate of 20% per year due to the recent development of a new irrigation method. This growth rate is expected to last for two more years after which other companies will have developed similar systems, and ATCs growth rate will drop to 6% thereafter. The most recent annual dividend (D0), which was paid yesterday, was $1.75 per share. If the growth in dividends matches the companys overall growth rate and if stockholders require a 12% return on ATCs stock, what is the current share price?
3. You want to estimate the current price of a share of Duffie Corp. stock. You know that next years dividend is expected to be $2.20 and the growth rate of dividends is 5%. You look in the Wall Street Journal and find that the riskfree interest rate is 4%. You also know from looking in Valueline that Duffie Corp. has a beta of 1.35. If the required return on the market is currently 12%, what is Duffies current share price?
PLEASE SHOW ALL WORK AND FORMULAS
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