8-13

Questions through 13 are based on the following information. Sally Ride, senior investment manager for the Neptune Mutual Fund, is trying to decide whether to purchase shares of Pluto Company's common stock for the Neptune portfolio. She assigns six analysts to estimate a fair price to pay for a shore of the stock Muto paid its common stockholders a quarterly per-share dividend of $114 over the past year (so we treat Des 51.144-4.56). All analysts at Neptune cree that an appropriate effective average annual rate of return for holding Pluto common stock is 12.25%. However, each of the six analysts has a different view of future dividend payments & Analyst Neil Armstrong does not think Pluto's per-share dividend will change in the foreseeable future by even one small steps in other words, he feels it will remain something close to the recent $4.56 level for enough into the future that he will model the expected dividend stream as a perpetuity. What is the highest price Armstrong would recommend paying for each share of Pluto Company common stock? What if the required effective annual rate of return instead were 102597 9. Analyst Le Vader Solo feels that some unseen force will cause Pluto's annual per-share dividend to rise fairly standily into the distant future, by a magnitude she finds it practical to model as a constant 29% per year. What is the highest price Vader Solo would recommend paying for each share of Plato Company common stock? What is the required effective average na rate of return intend were 10.25% What instead she predicted areasonably steady dividend growth rate that could be modeled as a constant 14% annually! 10. Analyut Will Robinson fears there is a danger that Pluto's annual per share dividend will decline fairly steadily in the coming year. If he models the change's magnitude as a constant-1.5% anually forever into the future, what is the highest price Robinson would recommend paying for each share of Pluto Company common stock? What if instead he predicted divided change that could be modeled as a constant -63% mually forever? What if the required average effective anal rate of return instead were 10.25% 11. Analyyt Judy Jetsonforesees a slightly rosier future for Photos Artrong or Robinson, predicting that the smalper shure dividend will remain at 54.56 for three years, and then increase forever into the future in a fairly steady manner that can be modeled as a constant 2.5% per year. What is the highest price Jetson would recommend paying for each share of Plato Company common stock? What if the required effective annual rate of return were stad to v 10.35% 12. Although Sigoumey Ripley is reluctant to slimate her fellow analysts, the expresses the even more optimistic view that the per-share dividend Muto pays to its common stockholders will grow by approximately 19% per year for three years, and then by a magnitude that can be modeled as a constant 2.8 per year forever into the future. What is the highest price Ripley would recommend that the Neptune Mutual Fund pay for each share of Pluto Company commock What if the required effective verse multe of instead were slower 10.357 13. Finally, analyst James T. Kirke is even more optimistic than Ripley, expecting Pluto Comy to boldly raise is dividend where ne similar firm has gone before. Specifically, he predicts that the pershare dividend will grow by approximately 45% in year 1.35 in year 2.25% in year, and 15% in year and then subsequently by a sety rate that can be modeled as a constant 25% per year forever into the future. What is the highest price Kek would recommend paying for each share of Photo Company common ok What instead he expected powth to be approximately in year for leveling off to a figure that could be modeled as con 259 starting in your 67 What if the effective avenge tate of instead were 10.25% 2881 words English (United States) Focus