Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
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.
58. P/E Model and Cash Flow Valuation Suppose that a firm's recent earnings per share
and dividends per share are $2.50 and $1.00, respectively. Both are expected to grow at 10
percent. However, the firm's current P/E ratio of 22 seems high for this growth rate. The P/E
ratio is expected to fall to 18 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.
59. At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you
need to buy 200 shares of General Electric (GE), which trades at $45.19?
60. At your discount brokerage firm, it costs $7.95 per stock trade. How much money do you
receive after selling 250 shares of General Electric (GE), which trades at $55.19?
61. A preferred stock from DLC pays $3.00 in annual dividends. If the required return on the
preferred stock is 9.3 percent, what is the value of the stock?
62. Ultra Petroleum (UPL) has earnings per share of $1.75 and P/E of 42.56. What is the
stock price?
42.56 × 1.75 = 74.48
63. JPM has earnings per share of $3.75 and P/E of 47. What is the stock price?
64. A firm is expected to pay a dividend of $2.00 next year and $3.75 the following year.
Financial analysts believe the stock will be at their price target of $125.00 in two years. Compute
the value of this stock with a required rate of return of 15 percent.
65. Financial analysts forecast ABC Inc. growth for the future to be 12 percent. ABC's recent
dividend was $1.60. What is the value of ABC stock when the required return is 15 percent?
1.6(1.12)/(0.15 - 0.12) = 59.73
66. A fast growing firm recently paid a dividend of $0.80 per share. The dividend is expected
to increase at a rate of 30 percent rate for the next four years. Afterwards, a more stable 7
percent growth rate can be assumed. If a 10 percent discount rate is appropriate for this stock,
what is its value?
67. A fast growing firm recently paid a dividend of $1.00 per share. The dividend is expected
to increase at a rate of 15 percent rate for the next 3 years. Afterwards, a more stable 6 percent
growth rate can be assumed. If a 10 percent discount rate is appropriate for this stock, what is its
value?
68. A firm recently paid a $0.50 annual dividend. The dividend is expected to increase by 10
percent in each of the next three years. In the third year, the stock price is expected to be $110. If
the required return is 15 percent, what is its value?
69. Campbell Soup Co. paid a $1.55 dividend per share in 2004, which grew to $1.95 in 2009.
This growth is expected to continue. What is the value of this stock at the beginning of 2010
when the required return is 10.5 percent?
70. Consider a firm that had been priced using a 12 percent growth rate and a 16 percent
required return. The firm recently paid a $5.00 dividend. The firm has just announced that
because of a new joint venture, it will likely grow at a 12.5 percent rate. How much should the
stock price change (in dollars and percentage)?
71. Suppose that a firm's recent earnings per share and dividend per share are $2.50 and
$1.00, respectively. Both are expected to grow at 5 percent. However, the firm's current P/E ratio
of 23 seems high for this growth rate. The P/E ratio is expected to fall to 19 within five years.
Compute a value for this stock. Assume a 10 percent required rate.
