IF Study Questions for Equity Valuation

IF Study Questions for Equity Valuation - BUSFIN 1030...

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BUSFIN 1030 – Introduction to Finance Study Questions for Equity Valuation 1. A company has preferred stock outstanding that is currently selling for $80 a share. If the company is paying a constant annual dividend of $7.60 per share for its preferred stock, what is the return required by investors? 2. A company is planning to issue preferred stock to finance an investment that will cost $50 million. The company is committing to pay $5 a share every quarter indefinitely starting 3 months from today. If annualized required return of the preferred stock is 8%, how many shares will the company have to issue in order to raise the required amount? 3. What is the equilibrium stock price of a company that earns $12 a share every year and pays all its earnings out to its shareholders if the required return of company’s equity is 16%? 4. A company has just paid a $3 dividend per share, which is expected to grow at the historical rate of 5% annually forever. The required return of company’s equity is 12%. What is the company’s current equilibrium stock price? 5. A company has just paid a $1 dividend per share, which is expected to grow 15% annually forever. The required return of company’s equity is 19%. a. What is the company’s current equilibrium stock price? b. What is the company’s expected stock price in 10 years? 6. A private company is planning to go public. The company is expected to pay its first dividend in the amount of $2.40 per share next year and the dividends are then expected to grow 5% annually forever. If the investors require 15% return from the equity of companies with similar risk, how much maximum will they be willing to pay for this company’s stock? 7.
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This note was uploaded on 10/16/2009 for the course BUSFIN 1030 taught by Professor Zutter during the Fall '08 term at Pittsburgh.

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IF Study Questions for Equity Valuation - BUSFIN 1030...

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