homework about the dividend discounting and CAPM

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Dividend Discounting Homework Including CAPM 1. The American Pig Company (ticker symbol PORK) recently paid a dividend of $3.00 per share, which is expected to rise by $.25 per share for the next 5 years. The stock currently sells for $36 per share, a ratio of 12 times its current dividends. The same ratio of dividends to price is also expected at the end of 5 years. Compute the present value of PORK's expected income stream for discount rates a. of 9 percent b. of 15 percent 2. Evaluate the stock price of ZYX Corporation using the following information: recent dividend: $1.00 respective annual dividend over next 5 years: $1.20, $1.30, $1.40, $1.50, $1.60 current discount rate: 15 percent current and future market price/dividend rate= 7.5 3. Assuming constant growth, compute the market price for the following sets of information: a. d0 = $3; k = 13%; g = 8% b. d0 = $4; k = 14%; g = 10% c. d0 = $5.50; k = 15%; g = 12% 4. Bobster Corp., which is only ten years old, has never paid a dividend. Based on your analysis, you think it will pay the following dividends in the future: $1 one year from now $3 two years from now $5 three years from now Other points: After the $5 dividend, you expect dividends to grow at a rate of 5% for the foreseeable future. After the dividend at the end of the fifth year, you think that the market will require a rate of return of 12% because you think the market will recognize the future growth and stability of the company at that time. At that point (after the dividend at the end of the fifth year), you will sell the stock. Because Bobster is not a mature company and has never paid a dividend, you require a rate of return on your 5-year investment of 35%. How much are you willing to pay for the stock? 5. Consider the following for Snuggli Corporation. Snuggli's price is $50 Snuggli just paid an annual dividend of $3 Snuggli's projected growth rate for the foreseeable future is 8% Snuggli's beta is 1.1. Risk-free rate is 3% Expected return for the market is 10% Calculate the following a) Calculate Snuggli's required rate of return, using CAPM. b) Calculate Snuggli's value, using CAPM and the Gordon constant growth model. c) Compare Snuggli's price to rice to Snuggli's value from b) above. d) Compare Snuggli's Gordon return to Snuggli's CAPM required rate of return from a) above