Chapter 9 - Questions 1 - 5 (5 points each)

91.Given an 8% required rate of return and a risk-free rate of 2%, what is the maximum you are willing to spend per share to buy preferred stock that pays a constant annual dividend of $5.50 per share?

92.Given an 8% required rate of return, a growth rate of 4%, and a risk-free rate of 2%, what is the maximum you are willing to spend per share to buy common stock that just paid a dividend of $4.25 per share?

93.Parsley Gardens common stock sells for $30 a share at a market rate of return of 10%.The company will pay an annual dividend of $1.80 next year.What is the rate of growth of its dividend?

94.Snail, Inc. just paid its first dividend of $1.00.The predicted dividend growth rate over the next two years will be 3% before adjusting up to a faster rate of 4% indefinitely.What is this stock worth to you per share if you demand a 8% rate of return?

95. The Loring Truck Company will have cash flow to the firm of $45 million for the next year.Cash flow will grow continuously at 5% forever.The firm has $100 million in debt and 50 million shares outstanding.Using a constant growth model, if the rate of return (WACC) is 10%,

(i)then what is the value of the firm when using the constant growth model?

(ii)then what is the value of the stock?(Hint: like A=D+E, Firm Value = MV Equity + MV Debt)