UWull llullerical values for the various ratios. MS 1. You are given the following data: Required return 10% Present dividend $1 Growth rate 596 a) What is the value of the stock? b) If the growth rate increases to 6 percent and remains $1, what is the value the dividend of the stock? c) If the required return declines to 9 percent and the dividend remains is the $1,what value of the stock? If the stock is selling for S20, what does that imply? 2. An investor requires a return of 12 percent on risky securities. A stock sells for S25, it pays a dividend of $1,and the dividends compound annually at 7 percent. Will this in vestor find the stock attractive? What is the maximum amount that this investor should pay for the stock? 3. A firm's stock earns S2 per share, and the firm distributes 40 percent of its earnings as cash dividends. Its dividends grow annually at 4 percent. a) What is the stock's price if the required return is 8 percent? b) he firm borrows funds and, as a result, its per-share earnings and dividends in crease by 20 percent. What happens to the stock's price if the growth rate and the required return are unaffected? What will the stock's price be if after using financial leverage and increasing the dividend to S1, the required return rises to 10 percent? What may cause this required return to rise? 4. The annual risk-free rate of return is 2 percent and the investor believes that the market will rise annually at 7 percent. If a stock has a beta coefficient of 1.5 and its current dividend is $1, what should be the value of the stock if its earnings and dividends are growing annually at 4 percent? Leinning. All Rigo Reserved May