ch5_proresheno - Extra class 2 Future stock price-constant...

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

View Full Document Right Arrow Icon
Extra class 2 Future stock price--constant growth Diff: E 1. Womack Toy Company’s stock is currently trading at $25 per share. The stock’s dividend is projected to increase at a constant rate of 7 percent per year. The required rate of return on the stock, k s , is 10 percent. What is the expected price of the stock 4 years from today? Future stock price--constant growth Diff: E 2. Waters Corporation has a stock price of $20 a share. The stock’s year-end dividend is expected to be $2 a share (D 1 = $2.00). The stock’s required rate of return is 15 percent and the stock’s dividend is expected to grow at the same constant rate forever. What is the expected price of the stock seven years from now? Nonconstant growth stock Diff: M 3. Mack Industries just paid a dividend of $1.00 per share (D 0 = $1.00). Analysts expect the company’s dividend to grow 20 percent this year (D 1 = $1.20) and 15 percent next year. After two years the dividend is expected to grow at a constant rate of 5 percent. The required rate of return on the company’s stock is 12 percent. What should be the company’s current stock price? Nonconstant growth stock Diff: M 4. Holmgren Hotels’ stock has a required return of 11 percent. The stock currently does not pay a dividend but it expects to begin paying a dividend of $1.00 per share starting five years from today (D 5 = $1.00). Once established the dividend is expected to grow by 25 percent per year for two years, after which time it is expected to grow at a constant rate of 10 percent per year. What should be Holmgren’s stock price today? Supernormal growth stock Diff: M 5. DAA’s stock is selling for $15 per share. The firm’s income, assets, and stock price have been growing at an annual 15 percent rate and are expected to continue to grow at this rate for 3 more
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 10/03/2010 for the course FINANCE 08FB40447 taught by Professor Raymond during the Spring '10 term at University of Manchester.

Page1 / 5

ch5_proresheno - Extra class 2 Future stock price-constant...

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