Chapter7 - Homework Manager - Corporate Finance FIN301-004

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Question 1: Score 0/1 Your response Correct response Stock Values Banya, Inc., just paid a dividend of $1.24 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year, indefinitely. If investors require a 12 percent rate of return on Banya stock, the price of the stock today is $ (0%). The price of the stock in 4 years will be $ (0%), and the price of the stock in 11 years will be $ (0%). (Round your answers to 2 decimal places. Omit the "$" sign in your response.) Stock Values Banya, Inc., just paid a dividend of $1.24 per share on its stock. The dividends are expected to grow a rate of 5 percent per year, indefinitely. If investors require a 12 percent rate of return on Banya stock, the stock today is $ 18.6 with a tolerance of ± 1.0% . The price of the stock in 4 years will with a tolerance of ± 1.0% , and the price of the stock in 11 years will be $ 31.81 with a t of ± 1.0% . (Round your answers to 2 decimal places. Omit the "$" sign in your response.) Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0% Feedback: The constant dividend growth model is: P t = D t × (1 + g ) / ( R g ) So, the price of the stock today is: P0 = D0 (1 + g ) / ( R g ) P0 = $1.24 (1.05) / (0.12 – 0.05) P0 = $18.60 The dividend at year 5 is the dividend today times the FVIF for the growth rate in dividends for 5 years, so: P4 = D4 (1 + g ) / ( R g ) P4 = D0 (1 + g) 5 / ( R g ) P4 = $1.24 (1.05) 5 / (0.12 – 0.05) P4 = $22.61 We can do the same thing to find the dividend in Year 12, which gives us the price in Year 11, so: P11 = D11 (1 + g ) / ( R g ) P11 = D0 (1 + g) 12 / ( R g ) P11 = $1.24 (1.05) 12 / (0.12 – 0.05) P11 = $31.81 Question 2: Score 0/1 Your response Correct response Stock Values The next dividend payment by Carroll, Inc., will be $3.85 per share. The dividends are anticipated to maintain a 7 percent growth rate, forever. If the stock currently sells for $48 per share, the required return of the stock is (0%) percent. (Input answer as a percent rounded to 2 decimal places, without the percent sign.) Stock Values The next dividend payment by Carroll, Inc., will be $3.85 per share. The dividends are anticipated to m percent growth rate, forever. If the stock currently sells for $48 per share, the required return of the sto with a tolerance of ± 1.0% percent. (Input answer as a percent rounded to 2 decimal plac the percent sign.) Total grade: 0.0×1/1 = 0% Feedback: We need to find the required return of the stock. Using the constant growth model, we can solve the equation for R . Doing so, we find: R = (D1 / P0) + g R = ($3.85 / $48) + 0.07 R = 0.1502 or 15.02% Question 3: Score 0/1 Your response Correct response Stock Values The next dividend payment by Carroll, Inc., will be $3.75 per share. The dividends are anticipated to maintain a 6.5 percent growth rate, forever. The stock currently sells for $76 per share. The dividend yield is (0%) percent, and the expected capital gains yield is
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This note was uploaded on 10/10/2010 for the course FIN 301 taught by Professor Andelin,stevenle during the Spring '07 term at Pennsylvania State University, University Park.

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Chapter7 - Homework Manager - Corporate Finance FIN301-004

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