Exercise $6-$

Two companies have just paid a $$2\mathrm{.}00$ dividend. Company NG Inc. is expected to continue the same dividend payment indefinitely. CG Corp.$\text{'}$s dividend is expected to grow at a constant rate of $4\%$ indefinitely. For both companies the market$-$required rate of return $($discount rate$)$ is $12\%.$

a$.$ Calculate both companies' current stock prices.

b$.$ Calculate both companies' stock prices one year from today and the one year rate of return for an investor buying at the current rate, getting the dividend and selling immediately after that at the one year price. $.$

c$.$ Calculate the expected stock price of both companies ive years from the present. What would be the expected rate of return for an investor buying either stock in year five and holding it for one year only?

The Atreides Company reported $$4$ earnings per share. The company required rate of return is $12\%$ and Return on Equity is $20\%.$ Management considers three options:

A$-$ Permanent dividend payout of $75\%$;

B$-$ National expansion that will require $25\%$ dividend payout for five years, and return to $75\%$ permanent dividend payout after that;

C$-$ Worldwide expansion that will require zero dividend payout for eight years, and return to $75\%$ permanent dividend payout after that.

Calculate the stock price under the three options.

$3.$ Vader Inc. next year earnings per share is expected to be $$6.$ Its return on equity is $25\%,$ which is expected to remain for the foreseeable future. The market required return is $13\%.$

a$.$ Vader maintains an $80\%$ dividend payout ratio. Calculate the Vader stock price and NPVGO.

b$.$ Calculate Vader stock price and NPVGO if Vader management chooses an $84\%$ dividend payout policy. Do what you can with excel