Nonconstant Growth Valuation

A company currently pays a dividend of $1 per share (D₀ = $1). It is estimated that the company's dividend will grow at a rate of 22% per year for the next 2 years, then at a constant rate of 5% thereafter. The company's stock has a beta of 0.85, the risk-free rate is 5.5%, and the market risk premium is 4%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.

Constant Growth Rate, g

A stock is trading at $70 per share. The stock is expected to have a year-end dividend of $6 per share (D₁ = $6), and it is expected to grow at some constant rate g throughout time. The stock's required rate of return is 11% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of g? Round the answer to three decimal places.

Declining Growth Stock Valuation

Brushy Mountain Mining Company's coal reserves are being depleted, so its sales are falling. Also, environmental costs increase each year, so its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 10% per year. If D₀ = $4 and r_s = 11%, what is the value of Brushy Mountain's stock? Round your answer to the nearest cent.

Nonconstant Growth Stock Valuation

Assume that the average firm in your company's industry is expected to grow at a constant rate of 6% and that its dividend yield is 7%. Your company is about as risky as the average firm in the industry, but it has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 50% [D₁ = D₀(1 + g) = D₀(1.50)] this year and 30% the following year, after which growth should return to the 6% industry average. If the last dividend paid (D₀) was $1.5, what is the value per share of your firm's stock? Round your answer to the nearest cent. Do not round your intermediate computations.

Preferred Stock Valuation

Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 9% of its $100 par value. Preferred stock of this type currently yields 7%. Assume dividends are paid annually.

a. What is the value of Rolen's preferred stock? Round your answer to the nearest cent.

b. Suppose interest rate levels have risen to the point where the preferred stock now yields 14%. What would be the new value of Rolen's preferred stock? Round your answer to the nearest cent.