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    Exercise Stock Valuation

    Uploaded by

    Umair Shekhani
    The document contains multiple questions about calculating stock prices and values using dividend discount models and constant growth models. It provides information on dividend payments, expected growth rates, and required rates of return for different companies to calculate current stock prices, future dividend payments, and intrinsic stock values. The questions analyze scenarios involving stocks with changing and constant dividend growth rates to determine financial values using concepts like perpetuity, non-constant growth, and terminal values.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Exercise Stock Valuation

    Uploaded by

    Umair Shekhani
    240 views2 pages
    The document contains multiple questions about calculating stock prices and values using dividend discount models and constant growth models. It provides information on dividend payments, expected growth rates, and required rates of return for different companies to calculate current stock prices, future dividend payments, and intrinsic stock values. The questions analyze scenarios involving stocks with changing and constant dividend growth rates to determine financial values using concepts like perpetuity, non-constant growth, and terminal values.

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    The document contains multiple questions about calculating stock prices and values using dividend discount models and constant growth models. It provides information on dividend payments, expected growth rates, and required rates of return for different companies to calculate current stock prices, future dividend payments, and intrinsic stock values. The questions analyze scenarios involving stocks with changing and constant dividend growth rates to determine financial values using concepts like perpetuity, non-constant growth, and terminal values.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    240 views2 pages

    Exercise Stock Valuation

    Uploaded by

    Umair Shekhani
    The document contains multiple questions about calculating stock prices and values using dividend discount models and constant growth models. It provides information on dividend payments, expected growth rates, and required rates of return for different companies to calculate current stock prices, future dividend payments, and intrinsic stock values. The questions analyze scenarios involving stocks with changing and constant dividend growth rates to determine financial values using concepts like perpetuity, non-constant growth, and terminal values.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Q. Snyder Computers Inc. is experiencing rapid growth.

    Earnings and dividends are


    expected to grow at a rate of 15% during the next 2 years, at 13% the following year, and at a
    constant rate of 6% during Year 4 and thereafter. Its last dividend was $1.15, and its required rate
    of return is 12%.
    a) Calculate the value of the stock today.
    b) Calculate P1 and P2.
    c) Calculate the dividend and capital gains yields for Years 1, 2, and 3.
    Q. Warr Corporation just paid a dividend of $1.50 a share (that is, D0 = $1.50). The dividend
    is expected to grow 7% a year for the next 3 years and then at 5% a year thereafter. What is the
    expected dividend per share for each of the next 5 years?
    Q. Thomas Brothers is expected to pay a $0.50 per share dividend at the end of the year (that
    is, D1 ¼ $0.50). The dividend is expected to grow at a constant rate of 7% a year. The required
    rate of return on the stock, rs, is 15%. What is the stock’s current value per share?
    Q. Harrison Clothiers’ stock currently sells for $20.00 a share. It just paid a dividend of
    $1.00 a share (that is, D0 ¼ $1.00). The dividend is expected to grow at a constant rate of 6% a
    year. What stock price is expected 1 year from now? What is the required rate of return?
    Q. Hart Enterprises recently paid a dividend, D0, of $1.25. It expects to have nonconstant
    growth of 20% for 2 years followed by a constant rate of 5% thereafter. The firm’s required
    return is 10%.
    a) How far away is the terminal, or horizon, date?
    b) What is the firm’s horizon, or terminal, value?
    c) What is the firm’s intrinsic value today, P0?
    Q. Fee Founders has perpetual preferred stock outstanding that sells for $60 a share and pays
    a dividend of $5 at the end of each year. What is the required rate of return?
    Q. What will be the nominal rate of return on a perpetual preferred stock with a $100 par
    value, a stated dividend of 8% of par, and a current market price of (a) $60, (b) $80, (c) $100,
    and (d) $140?
    Q. Ezzell Corporation issued perpetual preferred stock with a 10% annual dividend. The
    stock currently yields 8%, and its par value is $100.
    a) What is the stock’s value?
    b) Suppose interest rates rise and pull the preferred stock’s yield up to 12%. What is its new
    market value?
    Q. Martell Mining Company’s ore reserves are being depleted, so its sales are falling. Also,
    because its pit is getting deeper each year, its costs are rising. As a result, the company’s
    earnings and dividends are declining at the constant rate of 5% per year. If D0 = $5 and rs = 15%,
    what is the value of Martell Mining’s stock?
    Q. A stock is expected to pay a dividend of $0.50 at the end of the year (that is, D1 = 0.50),
    and it should continue to grow at a constant rate of 7% a year. If its required return is 12%, what
    is the stock’s expected price 4 years from today?
    Q. Investors require a 15% rate of return on Levine Company’s stock (that is, rs = 15%).
    a) What is its value if the previous dividend was D0 ¼ $2 and investors expect dividends to
    grow at a constant annual rate of (1) –5%, (2) 0%, (3) 5%, or (4) 10%?
    b) Using data from Part a, what would the Gordon (constant growth) model value be if the
    required rate of return was 15% and the expected growth rate was (1) 15% or (2) 20%?
    Are these reasonable results? Explain.
    c) Is it reasonable to think that a constant growth stock could have g > rs? Explain.
    Q. Microtech Corporation is expanding rapidly and currently needs to retain all of its
    earnings; hence, it does not pay dividends. However, investors expect Microtech to begin paying
    dividends, beginning with a dividend of $1.00 coming 3 years from today. The dividend should
    grow rapidly—at a rate of 50% per year—during Years 4 and 5; but after Year 5, growth should
    be a constant 8% per year. If the required return on Microtech is 15%, what is the value of the
    stock today?

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