Hello, I need help with these 2 problems for Finance (the chapter is about valuing stocks). Thank you in advance.
Chapter 9: Stocks 1) ABN Amro will pay an end of year dividend of 1.80 per share in two years. The dividend payment is expected to grow at 5% from the end of year two to the end of year ve. Thereafter dividends will grow 3% per year forever. The cost of equity is 8% per year. a. b. Explain what the cost of equity means and how it can be determined. According to the dividend-discount model, what is the value of one share of ABN Amro today? 2) Unilever will pay 1.20 dividend per share in one year and another dividend of 1.30 in two years. Analysts believe that the stock price will be 18 in 2 years. Assume the discount rate is 9% per year for the company's equity. a. b. E" Assume an investor plans to buy and hold this stock for 2 years. What is a fair price for this stock to day? Now assume that in 1 year, after receiving the rst dividend of 1.20, the investor sells the stock. What is the expected market price for the stock at the time you sell it [so at time 1]? What is the dividend yield and capital gains rate for this stock in year 1? What is the total return of this stock in year 1? How does this compare to the equity cost of capital? If the investor plans to buy the stock and sell it after 1 year, what is the fair price of this stock today? Hint: use your earlier answers. Does today's fair stock price depend on the amount of time the investor is planning on holding the share? Hint: compare your answers to a. and e. Consider the stock price under a. If Unilever has earnings of 3 million and 1 million shares outstanding, what is Unilever's earnings per share [EPS] and P/E ratio? Assume the average enterprise value to EBIT ratio of the competitors of Unilever is 7 and that Unilever has an EBIT of 4 million and 1 million shares outstanding. The debt of Unilever is 6 million. What is the estimate of the share price of Unilever according to this ratio? Which stock price do you nd more realistic, the one under a. or the one under