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101.
Suppose you know a company's stock currently sells for $85 per share and
the required return on the stock is 10 percent. You also know that the total
return on the stock is evenly divided between a capital gains yield and a
dividend yield. What is the current dividend if it's the company's policy to
always maintain a constant growth rate in its dividends?
102.
Whistle Stop Trains pays a constant $16 dividend on its stock. The company
will maintain this dividend for the next 14 years and will then cease paying
dividends forever. What is the current price per share if the required return
on this stock is 15 percent?
103.
Morristown Industries has an issue of preferred stock outstanding that pays
a $12.60 dividend every year in perpetuity. What is the required return if this
issue currently sells for $80 per share?
104.
The Farmer's Market just paid an annual dividend of $5 on its stock. The
growth rate in dividends is expected to be a constant 5 percent per year
indefinitely. Investors require a 13 percent return on the stock for the first 3
years, a 9 percent return for the next 3 years, a 7 percent return thereafter.
What is the current price per share?
105.
Springboro Tech is a young start-up company. No dividends will be paid on
the stock over the next 15 years, because the firm needs to plow back its
earnings to fuel growth. The company will pay a $15 per share dividend in
16 years and will increase the dividend by 4 percent per year thereafter.
What is the current share price if the required return on this stock is 8
percent?
106.
Galloway, 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 $2 per share for each of the next 5 years, and then never pay
another dividend. How much are you willing to pay per share today to buy
this stock if you require a 15 percent return?
107.
Jen's Fashions is growing quickly. Dividends are expected to grow at a 19
percent rate for the next 3 years, with the growth rate falling off to a
constant 8 percent thereafter. The required return is 12 percent and the
company just paid a $3.80 annual dividend. What is the current share
price?
108.
Hardwoods, Inc. is a mature manufacturing firm. The company just paid a
$10 dividend, but management expects to reduce the payout by 9 percent
each year, indefinitely. How much are you willing to pay today per share to
buy this stock if you require a 15 percent rate of return?
109.
Bechtel Machinery stock currently sells for $65 per share. The market
requires a 14 percent return on the firm's stock. The company maintains a
constant 8 percent growth rate in dividends. What was the most recent
annual dividend per share paid on this stock?
110.
Southern Utilities just issued some new preferred stock. The issue will pay
a $19 annual dividend in perpetuity beginning 9 years from now. What is
one share of this stock worth today if the market requires a 7 percent return
on this investment?
111.
Big Falls Tours just paid a dividend of $1.55 per share. The dividends are
expected to grow at 30 percent for the next 8 years and then level off to a 6
percent growth rate indefinitely. What is the price of this stock today given
a required return of 15 percent?
112.
Harvey County Choppers, Inc. is experiencing rapid growth. The company
expects dividends to grow at 25 percent per year for the next 7 years before
leveling off to 7 percent into perpetuity. The required return on the stock is
12 percent. What is the current stock price if the annual dividend share that
was just paid was $1.05?
113.
Westover Winds just paid a dividend of $2.10 per share. The company will
increase its dividend by 8 percent next year and will then reduce its
dividend growth rate by 2 percentage points per year until it reaches the
industry average of 2 percent dividend growth, after which the company will
keep a constant growth rate forever. What is the price of this stock today
given a required return of 11 percent?
Essay Questions
114.
What are the primary differences and similarities between NASDAQ and the
NYSE?
115.
Using the dividend growth model, explain why a firm would be hesitant to
reduce the growth rate of its dividends.
116.
Kelley wants to purchase shares in Classic Kars, Inc., but is torn between
buying shares of common stock or shares of preferred stock. What should
he consider before determining the type of share he should purchase?
117.
Explain why small shareholders should prefer cumulative voting over
straight voting.
118.
Ted, a wealthy individual, plans to purchase 30 percent of a firm's Class A
shares of outstanding stock. He believes that such a purchase will allow
him to control the firm by electing his candidates to the board over time as
current board member's terms expire. The firm has a cumulative voting
process. What factors should Ted be considering and why to ensure he can
gain the control he desires?
119.
Explain the primary change that occurred in the structure of the NYSE in
2006 and how that change affected the exchange members.
