Description

Complete the following problems from Chapter 7 in the textbook:

1. P7-2,P7-8,P7-10,P7-14,P7-17 and P7-19

Follow these instructions for completing and submitting your assignment:

1. Do all work in Excel. Do not submit Word files or *.pdf files.
2. Submit a single spreadsheet file for this assignment. Do not submit multiple files.
3. Place each problem on a separate spreadsheet tab.
4. Label all inputs and outputs and highlight your final answer.
5. Follow the directions in "Guidelines for Developing Spreadsheets."

P72 Preferred dividends Slater Lamp Manufacturing has an outstanding issue of preferred

stock with an $80 par value and an 11% annual dividend.

a. What is the annual dollar dividend? If it is paid quarterly, how much will be paid

each quarter?

b. If the preferred stock is noncumulative and the board of directors has passed the

preferred dividend for the last three quarters, how much must be paid to preferred

stockholders in the current quarter before dividends are paid to common

stockholders?

c. If the preferred stock is cumulative and the board of directors has passed the preferred

dividend for the last three quarters, how much must be paid to preferred

stockholders in the current quarter before dividends are paid to common stockholders?

P78 Common stock value: Constant growth Use the constant-growth model (Gordon growth model) to find the value of each firm shown in the following table.

Firm Dividend expected next year Dividend growth rate Required return

A $1.20 8% 13% B 4.00 5 15 C 0.65 10 14 D 6.00 8 9 E 2.25 8 20

P710 Common stock value: Constant growth The common stock of Denis and Denis Research, Inc., trades for $60 per share. Investors expect the company to pay a $3.90 dividend next year, and they expect that dividend to grow at a constant rate forever. If investors require a 10% return on this stock, what is the dividend growth rate that they are anticipating?

P714 Common stock value: Variable growth Lawrence Industries most recent annual dividend was $1.80 per share (D0 = $1.80), and the firms required return is 11%. Find the market value of Lawrences shares when: a. Dividends are expected to grow at 8% annually for 3 years, followed by a 5% constant annual growth rate in years 4 to infinity. b. Dividends are expected to grow at 8% annually for 3 years, followed by a 0% constant annual growth rate in years 4 to infinity. c. Dividends are expected to grow at 8% annually for 3 years, followed by a 10% constant annual growth rate in years 4 to infinity.

P717 Using the free cash flow valuation model to price an IPO Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $12.50 per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firms financial data that youve developed from a variety of data sources. The key values you have compiled are summarized in the following table.

Free cash flow Year (t) FCFt Other data 2016 $ 700,000 Growth rate of FCF, beyond 2019 to infinity = 2% 2017 800,000 Weighted average cost of capital = 8% 2018 950,000 Market value of all debt = $2,700,000 2019 1,100,000 Market value of preferred stock = $1,000,000 Number of shares of common stock outstanding = 1,100,000

P719 Valuation with price/earnings multiples For each of the firms shown in the following table, use the data given to estimate its common stock value employing price/ earnings (P/E) multiples.

Firm Expected EPS Price/earnings multiple A $3.00 6.2 B 4.50 10.0 C 1.80 12.6 D 2.40 8.9 E 5.10 15.0