EXERCISES ON TOPIC 3.docx - EXERCISES ON TOPIC 3 1 A stock currently sells for \$8 per share and the required return on the stock is 10 Assuming a a

# EXERCISES ON TOPIC 3.docx - EXERCISES ON TOPIC 3 1 A stock...

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EXERCISES ON TOPIC 3 1. A stock currently sells for \$8 per share, and the required return on the stock is 10%. Assuming a a constant growth rate of 5%, calculate the stock's last dividend paid. 2. You are evaluating the purchase of CTI common stock that just paid a dividend of RM1.80. You expect the dividend to grow at a rate of 12%, indefinitely. You estimate that a required rate of return of 16% will be adequate compensation for this investment. Assuming that your analysis is correct, what is the most that you would be willing to pay for the common stock if you were to purchase it today? 3. If Murnie Bhd's ROE is 10% and the management plans to retain 30% of earnings for investment purposes, what will be the firm's growth rate? 4. ZYX has paid the following dividends: 2018 \$2.87 2017 \$2.76 2016 \$2.60 2015 \$2.46 2014 \$2.37 2013 \$2.25 If you can earn 13% on similar-risk investments, what is the most you would pay per share for this firm? 5. The common stock of Gold Corp. recently paid dividends of RM1.96 per share. If the

• Spring '16
• Allan Mesina

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