Question
Please show all work if possible I would really appreciate it! 1. A stock currently has a market price per share of $25. The stocks
Please show all work if possible I would really appreciate it!
1. A stock currently has a market price per share of $25. The stocks last cash dividend was $2 per share; the companys earnings and dividends are expected to increase at a constant growth rate of 10% annually. Your required rate of return on this stock is 20%. From a strict valuation standpoint, is this stock fairly valued, undervalued or overvalued? Show all work.
2. ABCs last annual cash dividend was $1.50 per share. Its current equilibrium share market price is $15.75. The company is expected to grow at an annual rate of 5%. If your required rate of return is 15%, calculate for the coming year:
a. the expected dividend yield and
b. the expected capital gains yield.
3. XYZ is in an extremely competitive market, competing with the likes of China and India. Financial analysts predict that both earnings and dividends will probably decline at a rate of 5% annually into the foreseeable future. If XYZs last annual dividend was $2 per share, and if investors required rate of return is 15%, calculate XYZs share price in three years time.
4. JNJs stock is currently selling at $45.83 per share. The last cash dividend paid to shareholders of record was $2.50 per share. JNJ is a constant growth firm. If investors require a return of 16% on JNJs stock, what do they believe JNJs annual growth rate to be?
5. Adelphia, Inc. has 100,000 shares of preferred stock outstanding; the stocks par value is $50 per share. The stock pays a quarterly cash dividend of $1.25 per share. The current market price of Adelphia is $71.43. Calculate the nominal rate of return on Adelphias preferred stock.
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