P7-7 Preferred stock valuation Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has an $80 par value and pays an annual dividend of S6.40 per share. Similar-risk preferred stocks are currently earning a 9.3% annual rate of return. a. What is the market value of the outstanding preferred stock? b. If an investor purchases the preferred stock at the value calculated in part a, how much does she gain or lose per share if she sells the stock when the required return on similar-risk preferred stocks has risen to 10.5%? Explain. P7-8 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 4.00 0.65 D 6.00 E 2.25 13% 15 8% 10 14 20 P7-12 Common stock value-Variable growth Home Place Hotels, Inc., s entering into a 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that time, but when it is complete, it should allow the company to enjoy much improved growth in earnings and dividends. Last year, the company paid a dividend of S3.40. It expects zero growth in the next year. In years 2 and 3,5% growth is expected, and in year 4, 15% growth. In year 5 and thereafter, growth should be a constant 10% per year, what is the maximum price per share that an investor who requires a return of 14% should pay for Home Place Hotels common stock? P7-13 Common stock value-Variable growth Lawrence Industries' most recent annual dividend was $1.80 per share (DO $1.80), and the firm's required return is 11%. Find the market value of Lawrence's 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