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Unformatted text preview: FNCE 3010 (Durham) HW 8 (Stocks) 1. The Jackson-Timberlake Wardrobe Co., just paid a dividend of $1.40 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 12 percent return on The Jackson- Timberlake Wardrobe Co., stock, what is the current price? Solution: P = D 1 / ( R- g ) = D (1 + g ) / ( R- g ) = 1 . 4 1 . 06 / ( . 12- . 06) = $24 . 73 2. Ayden, Inc., has an issue of preferred stock outstanding that pays an $8.25 dividend every year, in perpetuity. If this issue currently sells for $113 per share, what is the required return? Solution: R = C/P = 8 . 25 / 113 = . 073 = 7 . 3% 3. Rizzi Co. is growing quickly. Dividends are expected to grow at a 25 percent rate for the next three years, with the growth rate falling off to a constant 7 1 percent thereafter. If the required return is 13 percent and the company just paid a $2.80 dividend, what is the current share price?...
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This note was uploaded on 03/31/2008 for the course FNCE 3010 taught by Professor Donchez,ro during the Fall '07 term at Colorado.
- Fall '07
- Corporate Finance