326fall07test2 prob soln

326fall07test2 prob soln - MGT 326 Fall 2007 Test 2 Problem...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
MGT 326 Fall 2007 Test 2 Problem Solutions 1 7. (Ch5) The stock of Jelly Bean Jim’s Confectionaries Inc. is currently selling for $50 per share. The firm's dividends are expected to grow at a rate of 15% per year for the next four years (i.e. until t=4). After this time, the dividends are expected to grow at a constant rate of 7% per year for the foreseeable future. The firm pays annual dividends and plans to pay a dividend of $1.80 at the end of this year (i.e. at t=1). The stock's required rate of return is 11%. Is this stock undervalued or overvalued and by how much? 1) Find D 2 , D 3 4 : D 1 = $1.8 Solution Opt 1: D 2 = $1.8(1+0.15/1) = $2.07 ; D 3 = $0.83(1+0.15/1) = $2.3805 ; D 4 = $0.8611(1+0.15/1) = $2.7376 Solution Opt 2: D 2 = $1.8(1+0.15/1) = $2.07 ; D 3 = $1.8(1+0.15/1) 2 = $2.3805 ; D 4 = $1.8(1+0.15/1) 3 = $2.7376 Solution Opt 3: D 2 =[P/Y=1,N=1, I/Y=15, PV=1.8; CPT,FV] $2.07 ; 2) Find PV at t=0 of D 1 , D 2 , D 3 4 and sum them Use Cash Flow Worksheet on your calculator CF, 2 nd , CLR WORK (Clear cash flow worksheet)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/02/2008 for the course MGT 326 taught by Professor Cormier during the Spring '08 term at New Mexico.

Page1 / 3

326fall07test2 prob soln - MGT 326 Fall 2007 Test 2 Problem...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online