36.
Value of Dividends and Future Price A firm is expected to pay a dividend of $2.00 next
year and $2.14 the following year. Financial analysts believe the stock will be at their
target price of $75.00 in two years. Compute the value of this stock with a required return
of 10 percent.
37.
Value of Dividends and Future Price A firm is expected to pay a dividend of $3.00 next
year and $3.21 the following year. Financial analysts believe the stock will be at their
target price of $80.00 in two years. Compute the value of this stock with a required return
of 13 percent.
38.
Dividend Growth Annual dividends of Wal-Mart Stores (WMT) grew from $0.23 in 2000 to
$0.83 in 2007. What was the annual growth rate?
39.
Dividend Growth Annual dividends of Pfizer, Inc. (PFE) grew from $0.38 in 2000 to $1.15
in 2007. What was the annual growth rate?
40.
Value a Constant Growth Stock Financial analysts forecast Best Buy Company (BBY)
growth for the future to be 13 percent. Their recent dividend was $0.49. What is the value
of their stock when the required rate of return is 14.13 percent?
41.
Value a Constant Growth Stock Financial analysts forecast Target Corp. (TGT) growth
for the future to be 11 percent. Their recent dividend was $0.52. What is the value of their
stock when the required rate of return is 11.89 percent?
42.
Expected Return American Eagle Outfitters (AEO) recently paid a $0.38 dividend. The
dividend is expected to grow at a 15.5 percent rate. At the current stock price of $24.07,
what is the return shareholders are expecting?
43.
Expected Return The Buckle (BKE) recently paid a $0.90 dividend. The dividend is
expected to grow at a 19 percent rate. At the current stock price of $43.17, what is the
return shareholders are expecting?
44.
Expected Return Home Depot (HD) recently paid a $0.90 dividend. The dividend is
expected to grow at a 17 percent rate. At the current stock price of $33.08, what is the
return shareholders are expecting?
45.
Dividend Initiation and Stock Value A firm does not pay a dividend. It is expected to pay
its first dividend of $0.10 per share in two years. This dividend will grow at 11 percent
indefinitely. Using a 13 percent discount rate, compute the value of this stock.
46.
Dividend Initiation and Stock Value A firm does not pay a dividend. It is expected to pay
its first dividend of $0.15 per share in three years. This dividend will grow at 9 percent
indefinitely. Using a 10 percent discount rate, compute the value of this stock.
47.
P/E Ratio Model and Future Price Walmart (WMT) recently earned a profit of $3.13 per
share and has a P/E ratio of 14.22. The dividend has been growing at a 12.5 percent rate
over the past few years. If this growth continues, what would be the stock price in five
years if the P/E ratio remained unchanged? What would the price be if the P/E ratio
declined
to 10 in five years?
48.
P/E Ratio Model and Future Price Target Corp. (TGT) recently earned a profit of $3.57
earnings per share and has a P/E ratio of 17.3. The dividend has been growing at a 14
percent rate over the past few years. If this growth continues, what would be the stock
price in five years if the P/E ratio remained unchanged? What would the price be if the
P/E ratio
increased
to 23 in five years?
49.
Value of Future Cash Flows A firm recently paid a $1.00 annual dividend. The dividend is
expected to increase by 10 percent in each of the next four years. In the fourth year, the
stock price is expected to be $100. If the required rate for this stock is 14 percent, what is
its value?
50.
Value of Future Cash Flows A firm recently paid a $0.30 annual dividend. The dividend is
expected to increase by 8 percent in each of the next four years. In the fourth year, the
stock price is expected to be $60. If the required rate for this stock is 10 percent, what is
its value?
51.
Constant Growth Stock Valuation Best Buy Co. (BBY) paid a $0.27 dividend per share in
2003, which grew to $0.49 in 2007. This growth is expected to continue. What is the value
of this stock at the beginning of 2007 when the required rate of return is 17.23 percent?
52.
Constant Growth Stock Valuation Target Corp. (TGT) paid a $0.21 dividend per share in
2000, which grew to $0.52 in 2007. This growth is expected to continue. What is the value
of this stock at the beginning of 2007 when the required rate of return is 14.77 percent?
53.
Changes in Growth and Stock Valuation Consider a firm that had been priced using a 10
percent growth rate and a 14 percent required rate. The firm recently paid a $1.00
dividend. The firm has just announced that because of a new joint venture, it will likely
grow at a 12 percent rate. How much should the stock price change (in dollars and
percentage)?
54.
Changes in Growth and Stock Valuation Consider a firm that had been priced using a 6
percent growth rate and a 9 percent required rate. The firm recently paid a $0.50 dividend.
The firm has just announced that because of a new joint venture, it will likely grow at an 8
percent rate. How much should the stock price change (in dollars and percentage)?
55.
Variable Growth A fast growing firm recently paid a dividend of $0.50 per share. The
dividend is expected to increase at a 25 percent rate for the next 3 years. Afterwards, a
more stable 12 percent growth rate can be assumed. If a 15 percent discount rate is
appropriate for this stock, what is its value?
56.
Variable Growth A fast growing firm recently paid a dividend of $1.00 per share. The
dividend is expected to increase at a 25 percent rate for the next three years. Afterwards,
a more stable 8 percent growth rate can be assumed. If a 10 percent discount rate is
appropriate for this stock, what is its value?
57.
P/E Model and Cash Flow Valuation Suppose that a firm’s recent earnings per share and
dividends per share are $3.00 and $1.50, respectively. Both are expected to grow at 10
percent. However, the firm’s current P/E ratio of 20 seems high for this growth rate. The
P/E ratio is expected to fall to 16 within five years. Compute a value for this stock by first
estimating the dividends over the next five years and the stock price in five years. Then
discount these cash flows using a 14 percent required rate.