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Unformatted text preview: Problem starts at 29 through 53 29. What is the value of a share of stock of HOV Inc. to an investor who requires a 12 percent rate of return if HOV's current dividend is $1.20? Assume earnings and dividends are expected to grow at a compound annual rate of 7 percent. a. $24.00 b. $18.34 c. $25.68 d. None of the above &gt; c Problem type: Constant growth dividend valuation Solution: P0 = $1.20(1 + 0.07) / (0.12  0.07) = $25.68 30.The current price of Zebar is $32.00 and the current dividend is $.60. What is an investor's required rate of return on Zebar if dividends are expected to grow perpetually at a compound annual rate of 8 percent? a. 9.88% b. 11.38% c. 18.75% d. None of the above &gt; d Problem type: Constant growth dividend valuation Solution: ke = $0.60(1.08)/$32 + 0.08 = 10.03% 31. Fast Wheels, Inc. expects to pay an annual dividend of $0.72 next year. Dividends have been growing at a compound annual rate of 6 percent and are expected to continue growing at that rate. What is the value of a share of stock of Fast Wheels to an investor who requires a 14 percent rate of return? a. $9.00 b. $5.14 c. $9.54 d. None of the above &gt; a Problem type: Constant growth dividend valuation Solution: ke = $0.72/(0.14  0.06) = $9.00 32. What is the current value of the common stock of the Limited if you know the current dividend yield is 6.14%, the PE is 16, and the annual dividend is $1.35? a. $21.60 b. $21.99 c. $8.29 d. $98.24 &gt; b Topic: Understanding stock quotations Solution: Price = dividend/current yield = $1.35/0.0614 = $21.99 33. If the common stock of Comdisco pays an annual dividend of $0.28, has a PE ratio of 11 and closed at 25, what are the current earnings per share? a. $3.08 b. $2.27 c. $7.00 d. $1.12 &gt; b Problem type: Understanding stock quotations Solution: EPS = P/PE = $25/11 = $2.27 34. If American Brands pays an annual dividend of $1.54, has a PE of 13, and its last closing price was 40, then its dividend yield must be a. 11.85% b. 3.85% c. 15.40% d. 3.25% &gt; b Problem type: Understanding stock quotations Solution: $1.54/$40 = 0.0385 or 3.85% 35. ZeroSum Enterprise expects to pay an annual dividend of $0.48 next year. Dividends and earnings have been growing at a compound annual rate of 8 percent and are expected to continue growing at that rate. What is an investor's required rate of return on ZeroSum if the current price is $12? a. 12.3% b. 12.0% c. 10.0% d. 10.3% &gt; b Problem type: Constant growth dividend valuation Solution: ke = $0.48/$12 + 0.08 = 12% 36. Assume ZeroSum Enterprise pays an annual dividend of $1.40 per share and that neither earnings nor dividends are expected to grow in the future. What is the value of ZeroSum's stock to an investor who requires a 14 percent rate of return?...
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This note was uploaded on 05/20/2011 for the course ECONS 111 taught by Professor Yo during the Spring '09 term at Nassau CC.
 Spring '09
 Yo

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