CORPORATE VALUATION free cash flow nest year, and RC isexpected to grow aconstant eate ini han ho debt or preterred stock, and its WACC ) million shares of stoch dstanding what is the stock's value per shae PREFERRED STOCK VALUATION Farley Ine has perpetual preferred sok andividend of $2.75 at the cnd of each year required rate of return PREFERRED STOCK RATE OF RETURN What will be the nominal rate of perpetual preferred stock with a S$100 current market price of (a) sS61, (b) $90, (c) $100, and (d) $1387 par value, a stated dividend of ion 9-8 PREFERRED STOCK VALUATION Earley Corporation issued perpetual prefered an 8% annual dividend ne stock currently yields 7%, and its par value is a. What is the stock's value? ppose interest rates rise and pull the preferred stock's yield up to 9% market value? PREFERRED STOCK RETURNS Avondale Aeronautics has perpetual preferred sor outstanding with a par value of $100. The stock pays a quarterly dividend current price is $45. a. What is its nominal annual rate of return? b. What is its effective annual rate of return? 9-10 VALUATION OF A DECLINING GROWTH STOCK Maxwell Mining Company's are being depleted, so its sales are falling. Also, because its pit is getting deeper its costs are rising. As a result, the company's earnings and dividends are decini constant rate of 6% per year. If D-$3 and r-10%, what is the value of Man. Mining's stock? $2.75 at the end of the year (i.e, Di 2.75), and it shoul from today? Mather Company's stock (i.e., rs 890). 9-11 VALUATION OF A CONSTANT GROWTH STOCK A stock is expected to pay a di rate of 5% a year. If its required return is 15%, what is the stock's expected pri VALUATION OF A CONSTANT GROWTH STOCK Investors require an 8% rate d continue to grow at a 9.12 a. What is its value if the previous dividend was Do- $1.25 and investors es dividends to grow at a constant annual rate of (1)-2%, (2) 0%, (3) 3%, or b. Using data from part a, what would the Gordon (constant growth) modely required rate of return was 8% and the expected growth rate was (1) 8% o these reasonable results? Explain. c. Is it reasonable to think that a constant growth stock could have g > T? not? CONSTANT GROWTH You are considering an investment in Justus Corpora which is expected to pay a dividend of $2.25 a share at the end of the year (U has a beta of 0.9. The risk-free rate is 4.9%, and the market risk premium is 5% sells for $46.00 a share, and its dividend is expected to grow at some constar Assuming the market is in equilibrium, what does the market believe will b 9-13 at the end of 3 years? (That is, what is P,?) NONCONSTANT GROWTH Computech Corporation is expanding rapidly reds to retain all of its earnings, hence, it does not pay dividends. How 9-14 hoginnine with a dividen what PREFERRED STOCK RETURNS os1o0 Thw stock pays a quarterly a What is its nominal arnual ra t What is its effective annual rate of retun VALUATION OF A DECLINING GROwTH STOCK of return 9-TO Maxwell Mining C depleted, so its sales are falling Also, because its pit is getting costs are rising As a result, the company's earnings and dividends ane :onstant rate of 6% per ytar. If to-S3 and ,-10%, what is the value ot Mining's stock? ALUATION OF A CONSTANT GROWTH STOCK A stock is expected to pay a $2.75 rate of 5% a year. If its re,tuired retum is 15%, what is the stock's expected t the end of the year (ie, Di -2.75), and it should continue to grow a from today? 9-12 VALUATION OF A CONSTANT GROWTH STOCK Mather Company's s Investors require annimi tock (ie, rs-8%). a. What is its value if the previous dividend was D $1.25 and inv dividends to grow at a constant annual rate of (1)-2%, 2) on, (313 , or b. Using data from part a, what would the Gordon (constant growth) model vau required rate of return was 8% and the expected growth rate was(1) 8% or these reasonable results? Explain c. Is it reasonable to think that a constant growth stock could have 2Wy not? 9-13 You are considering an investment in Justus Corporations CONSTANT GROWTH which is expected to pay a dividend of $2.25 a share at the end of the year (D has a beta of 0.9. The risk-free rate is 49%, and the market risk prem um is 5% ustus sells for $46.00 a share, and its dividend is expected to grow at some constant rate.s Assuming the at the end of 3 years? (That is, what is P2) market is in equilibrium, what does the market believe will be the 9-14 NONCONSTANT GROWTH Computech Corporation is expanding rapidly and cue needs to retain all of its earnings; hence, it does not pay dividends. However,in expect Computech to begin paying dividends, beginning with a dividend of $03) 3 years from today. The dividend should grow rapidly at a rate of 35% Years 4 and 5; but after Year 5, growth should be a constant 7% per year, lithe: return on Computech is 13%, what is the value of the stock today