StockProblems - Ch 8 Stocks 1 Windsor Corporation paid a...

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Ch. 8: Stocks 1. Windsor Corporation paid a cash dividend of $2.15 per share eight years ago to the firm’s common stock holders. Recently, the firm paid a dividend of $4.13. Dividends are expected to grow in the future at the same annual rate as during the past eight years. The required rate of return on Windsor common stock is 12 percent. a) What should be the intrinsic value of a share of Windsor common stock? b) If the current market price of Windsor is $120, what is your expected rate of return ? 2. Expo Corporation recently paid a dividend of $3.50 per share. The firm earns a return on equity of 20%. Expo typically pays out 40% of its earnings as dividends and reinvests the rest. Given current market conditions and the risk of Expo, you decide that your required rate of return on Expo common stock is 16%. What is the value of a share of Expo common stock? 3. PowerTech Electronics Corporation has issued preferred stocks that are currently selling for their par value of $75. The dividend rate is 12%, and dividends are paid annually, at the end of the year. Since
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