Chapter 8
Question 18
Input area:
Dividend growth rate – period 1 24%
Output area:
Price at end of supernormal growth 76.80$
Dividend growth rate – period 2 6%
Required return 11%
Chapter 8
Question 19
Input area:
Output area:
Current dividend 1.41$
Share price 76.00$
Required return 10%
Initial dividend growth rate 30%
Second growth rate 20%
Final growth rate 6%
Initial # of years 3
Second # of years 1
Chapter 8
Question 20
Input area:
Output area:
Dividend paid 9.40$
Dividend growth rate -4%
Required return 10.00%
Chapter 8
Question 21
Input area:
Output area:
Stock price 64.00$
Required return 11%
Dividend growth rate 4.50%
Chapter 8
Question 22
Input area:
Output area:
Share price one year before
first dividend 344.83$
Current dividend 20.00$
Years until dividend begins 20
Required return 5.8%
Chapter 8
Question 23
Input area:
Output area:
Today’s closing price 60.95$
Earnings per share 2.90$
Dividend yield 2.10%
Dividend paid 1.28$
Change in price (0.23)
P/E ratio 21
Commons shares outstanding 25,000,000
Chapter 8
Question 24
Input Area:
Output Area:
Dividend per share 1.30$
Initial growth rate 23%
Terminal growth rate 6%
# of years 8
Required return 12%
Chapter 8
Question 25
Input Area:
Initial growth rate 18%
Output Area:
# of years 11
Terminal growth rate 5%
Required return 12%
Dividend per share 1.94$
Chapter 8
Question 26
Input Area:
Output Area:
a. Current stock price 49.35$
c. Implicit return 7.00%
Benchmark PE 21
Earnings growth rate 7%
Chapter 8
Question 27
Input Area:
Output Area:
Year 1 Year 2 Year 3 Year 4
Year 1 Year 2 Year 3 Year 4
Stock price 49.50$ 58.12$ 67.34$ 60.25$
Earnings growth rate 11%
Chapter 8
Question 28
Input Area:
Year 1 Year 2 Year 3 Year 4
Output Area:
Year 1 Year 2 Year 3 Year 4
High stock price 97.90$ 121.50$ 130.90$ 147.53$
Low stock price 72.73 88.84 69.52 116.05
Earnings growth rate 6%
Chapter 8
Question 29
Input Area:
Output Area:
Projected EPS in 5 years 2.94$
Earnings growth rate 8%
Benchmark PE 22
Year for target stock price 5
Chapter 8
Question 30
Input area:
Output area:
EPS in 5 years 7.15$
Dividend growth rate 20%
Years of growth 5
Terminal payout ratio 40%
Benchmark PE 21
Required return 12%
Chapter 8
Question 31
Input Area:
Output Area:
Payout ratio 48.95%
Sustainable growth rate 7.83%
Current EPS 5.00$
EPS in one year 5.39$
Net income 950,000$
Shares outstanding 190,000
Benchmark PE 16
Chapter 8
Question 32
Input area:
Output area:
Dividend yields:
Stock W price 70.71$
Stock X price 26.47$
Stock Y price 19.43$
Stock Z price at final rate 145.15$
Stock Z current price 115.38$
In all cases, the required return is 17%, but this return is distributed
differently between current income and capital gains. High growth
stocks have an appreciable capital gains component but a
relatively small current income yield; conversely, mature, negative-
growth stocks provide a high current income but also price
depreciation over time.
Required return 17%
Most recent dividend 4.50$
Stock W dividend growth rate 10%
Stock X dividend growth rate 0%
Stock Y dividend growth rate -5%
Stock Z:
Initial growth rate 20%
Initial # of years 2
Final growth rate 12%
Chapter 8
Question 33
Input area:
Output area:
Effective first dividend 3.98$
Dividend paid 3.60$
Dividend growth rate 6%
Required return 12%
# of dividends per year 4
Chapter 8
Questions 34, 35
Input area:
Output area:
Share price after Year 3
dividend 46.29$
To solve problem #34, adjust the required return until
the share price is equal to $39.52. Alternatively, you could
use the “Solver” or “Goal Seek” functions.
Required return 12.75%
Most recent dividend 2.25$
Year 1 dividend growth rate 20%
Year 2 dividend growth rate 15%
Year 3 dividend growth rate 10%
Year 4 dividend growth rate 5%
Microsoft Excel 14.0 Answer Report
Worksheet: [FCF 10th edition Chapter 08.xlsx]#34, 35
Report Created: 9/5/2011 2:39:41 PM
Result: Solver found a solution. All Constraints and optimality conditions are satisfied.
Solver Engine
Solver Options