Homework Week5
Homework Week5
Homework Week5
8
Homework
1.)
The
Jackson–Timberlake
Wardrobe
Co.
just
paid
a
dividend
of
$1.95
per
share
on
its
stock.
The
dividends
are
expected
to
grow
at
a
constant
rate
of
6
percent
per
year
indefinitely.
If
investors
require
a
11
percent
return
on
The
Jackson–Timberlake
Wardrobe
Co.
stock,
what
is
the
current
price?
What
will
the
price
be
in
three
years?
In
15
years?
2.)
The
next
dividend
payment
by
Hot
Wings,
Inc.,
will
be
$2.10
per
share.
The
dividends
are
anticipated
to
maintain
a
5
percent
growth
rate
forever.
If
the
stock
currently
sells
for
$48
per
share,
what
is
the
required
return?
3.)
For
the
company
in
the
previous
problem,
what
is
the
dividend
yield?
What
is
the
expected
capital
gains
yield?
4.)
Metroplex
Corporation
will
pay
a
$3.04
per
share
dividend
next
year.
The
company
pledges
to
increase
its
dividend
by
3.8
percent
per
year
indefinitely.
If
you
require
an
11
percent
return
on
your
investment,
how
much
will
you
pay
for
the
company’s
stock
today?
5.)
Keenan
Co.
is
expected
to
maintain
a
constant
5.2
percent
growth
rate
in
its
dividends
indefinitely.
If
the
company
has
a
dividend
yield
of
6.3
percent,
what
is
the
required
return
on
the
company’s
stock?
6.)
Suppose
you
know
that
a
company’s
stock
currently
sells
for
$47
per
share
and
the
required
return
on
the
stock
is
11
percent.
You
also
know
that
the
total
return
on
the
stock
is
evenly
divided
between
a
capital
gains
yield
and
a
dividend
yield.
If
it’s
the
company’s
policy
to
always
maintain
a
constant
growth
rate
in
its
dividends,
what
is
the
current
dividend
per
share?
7.)
Apocalyptica
Corp.
pays
a
constant
$9.75
dividend
on
its
stock.
The
company
will
maintain
this
dividend
for
the
next
11
years
and
will
then
cease
paying
dividends
forever.
If
the
required
return
on
this
stock
is
10
percent,
what
is
the
current
share
price?
8.)
Resnor,
Inc.,
has
an
issue
of
preferred
stock
outstanding
that
pays
a
$5.50
dividend
every
year
in
perpetuity.
If
this
issue
currently
sells
for
$108
per
share,
what
is
the
required
return?
9.)
Red,
Inc.,
Yellow
Corp.,
and
Blue
Company
each
will
pay
a
dividend
of
$2.35
next
year.
The
growth
rate
in
dividends
for
all
three
companies
is
5
percent.
The
required
return
for
each
company’s
stock
is
8
percent,
11
percent,
and
14
percent,
respectively.
What
is
the
stock
price
for
each
company?
What
do
you
conclude
about
the
relationship
between
the
required
return
and
the
stock
price?
10.)
Great
Pumpkin
Farms
just
paid
a
dividend
of
$3.50
on
its
stock.
The
growth
rate
in
dividends
is
expected
to
be
a
constant
5
percent
per
year
indefinitely.
Investors
require
a
14
percent
return
on
the
stock
for
the
first
three
years,
a
12
percent
return
for
the
next
three
years,
and
an
10
percent
return
thereafter.
What
is
the
current
share
price?
11.)
Metallica
Bearings,
Inc.,
is
a
young
start-‐up
company.
No
dividends
will
be
paid
on
the
stock
over
the
next
nine
years
because
the
firm
needs
to
plow
back
its
earnings
to
fuel
growth.
The
company
will
pay
a
$10
per
share
dividend
in
10
years
and
will
increase
the
dividend
by
5
percent
per
year
thereafter.
If
the
required
return
on
this
stock
is
14
percent,
what
is
the
current
share
price?
12.)
Spears,
Inc.,
has
an
odd
dividend
policy.
The
company
has
just
paid
a
dividend
of
$7
per
share
and
has
announced
that
it
will
increase
the
dividend
by
$4
per
share
for
each
of
the
next
four
years,
and
then
never
pay
another
dividend.
If
you
require
an
11
percent
return
on
the
company’s
stock,
how
much
will
you
pay
for
a
share
today?
13.)
Far
Side
Corporation
is
expected
to
pay
the
following
dividends
over
the
next
four
years:
$11,
$8,
$5,
and
$2.
Afterward,
the
company
pledges
to
maintain
a
constant
5
percent
growth
rate
in
dividends
forever.
If
the
required
return
on
the
stock
is
12
percent,
what
is
the
current
share
price?
14.)
Marcel
Co.
is
growing
quickly.
Dividends
are
expected
to
grow
at
a
30
percent
rate
for
the
next
three
years,
with
the
growth
rate
falling
off
to
a
constant
6
percent
thereafter.
If
the
required
return
is
13
percent
and
the
company
just
paid
a
$1.80
dividend,
what
is
the
current
share
price?
15.)
Eva
Corp.
is
experiencing
rapid
growth.
Dividends
are
expected
to
grow
at
25
percent
per
year
during
the
next
three
years,
15
percent
over
the
following
year,
and
then
8
percent
per
year
indefinitely.
The
required
return
on
this
stock
is
13
percent,
and
the
stock
currently
sells
for
$76
per
share.
What
is
the
projected
dividend
for
the
coming
year?
16.)
Antiques
R
Us
is
a
mature
manufacturing
firm.
The
company
just
paid
a
$10.46
dividend,
but
management
expects
to
reduce
the
payout
by
4
percent
per
year
indefinitely.
If
you
require
an
11.5
percent
return
on
this
stock,
what
will
you
pay
for
a
share
today?
17.)
Ames
Corporation
stock
currently
sells
for
$64
per
share.
The
market
requires
a
10
percent
return
on
the
firm’s
stock.
If
the
company
maintains
a
constant
4.5
percent
growth
rate
in
dividends,
what
was
the
most
recent
dividend
per
share
paid
on
the
stock?
18.)
E-‐Eyes.com
Bank
just
issued
some
new
preferred
stock.
The
issue
will
pay
a
$20
annual
dividend
in
perpetuity,
beginning
20
years
from
now.
If
the
market
requires
a
6.4
percent
return
on
this
investment,
how
much
does
a
share
of
preferred
stock
cost
today?
20.)
Thirsty
Cactus
Corp.
just
paid
a
dividend
of
$1.25
per
share.
The
dividends
are
expected
to
grow
at
28
percent
for
the
next
eight
years
and
then
level
off
to
a
6
percent
growth
rate
indefinitely.
If
the
required
return
is
13
percent,
what
is
the
price
of
the
stock
today?
21.)
Chartreuse
County
Choppers
Inc.
is
experiencing
rapid
growth.
The
company
expects
dividends
to
grow
at
25
percent
per
year
for
the
next
11
years
before
leveling
off
at
6
percent
into
perpetuity.
The
required
return
on
the
company’s
stock
is
12
percent.
If
the
dividend
per
share
just
paid
was
$1.74,
what
is
the
stock
price?
22.)
Consider
four
different
stocks,
all
of
which
have
a
required
return
of
19
percent
and
a
most
recent
dividend
of
$4.50
per
share.
StocksW,
X,
and
Y
are
expected
to
maintain
constant
growth
rates
in
dividends
for
the
foreseeable
future
of
10
percent,
0
percent,
and
-‐5
percent
per
year,
respectively.
Stock
Z
is
a
growth
stock
that
will
increase
its
dividend
by
20
percent
for
the
next
two
years
and
then
maintain
a
constant
12
percent
growth
rate
thereafter.
What
is
the
dividend
yield
for
each
of
these
four
stocks?
What
is
the
expected
capital
gains
yield?
Discuss
the
relationship
among
the
various
returns
that
you
fi
nd
for
each
of
these
stocks.
24.)
Storico
Co.
just
paid
a
dividend
of
$2.45
per
share.
The
company
will
increase
its
dividend
by
20
percent
next
year
and
will
then
reduce
its
dividend
growth
rate
by
5
percentage
points
per
year
until
it
reaches
the
industry
average
of
5
percent
dividend
growth,
after
which
the
company
will
keep
a
constant
growth
rate
forever.
If
the
required
return
on
Storico
stock
is
12
percent,
what
will
a
share
of
stock
sell
for
today?
25.)
This
one’s
a
little
harder.
Suppose
the
current
share
price
for
the
firm
in
the
previous
problem
is
$63.82
and
all
the
dividend
information
remains
the
same.
What
required
return
must
investors
be
demanding
on
Storico
stock?
(Hint:
Set
up
the
valuation
formula
with
all
the
relevant
cash
flows,
and
use
trial
and
error
to
find
the
unknown
rate
of
return.)