DISCOUNTED CASH FLOW MODEL PROBLEMS
1. You bought a share of IBM stock today for $135. You expect to receive a dividend of $9.25
at the end of one year, based on the assumed constant growth rate, and
you expect a total
return of 16.5% for this stock. Given this information, what is your estimate of the longterm
growth rate for this stock?
2. Assume you are buying a share of XYZ stock today. The expected dividend one from today
is $1.35 and the stock price is current $22.35. The stock dividends exhibit constant growth of
9.3% and that is expected to continue. Based on this information, what is the expected rate of
return for XYZ stock?
3. The expected dividend one year from now on Statesboro Power and Light common shares
is $4.00 and the expected growth rate of the stock is 10 percent. If you require a rate of return
of 16 percent, what is the highest price you should be willing to pay for this stock?
4. The ACTUAL DIVIDEND just paid on ABC Inc. shares was $1.80 and the expected
constant growth rate of the stock dividend is 10 percent. If you require a rate of return of 20
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 Spring '10
 Barth
 Finance, Pricing, Dividend, Dividend yield

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