{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# problems 5 - a-\$60 b-\$70 c-\$80 Stock's Intrinsic Value =...

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

1- Simons Fixtures is expected to pay \$2.00 per share in dividends at the end of next 12 months. The growth rate in dividends is expected to be constant at 8% per year. If the stock is selling for \$50 per share, what is the required rate of return? Simon Fixtures Corp. is expected to pay \$2.00 per share in dividends at the end of the next 12 months. The growth rate in dividends is expected to be constant at 8% per year. If the stock is selling for \$50 per share, what is the required rate of return? We Have Dividend at end of 1 Yr = D1 = \$2.0 Growth rate of dividend g = 8% Current price of stock P0 = \$50 Now Current Price of stck P0 = D1/(Ks-g) where Ks is required rate of return So Ks = D1/P0 + g = 2/50 + 0.08 = 0.12 = 12% So Required rate of return is 12% 2- The preferred stock of Lewis Schultz Enterprises pays an annual dividend of \$6. What is the required rate of return if the market value of the preferred stock is:

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: a-\$60 b-\$70 c-\$80 Stock's Intrinsic Value = Annual Dividends / Required Rate of Return a-\$60=\$6/required rate of return Required rate of return=\$6/\$60=0.1 or 10% b-\$70=\$6/ required rate of return required rate of return=\$6/\$70=0.857 or 8.57% c-\$80=\$6/ required rate of return required rate of return=\$6/\$80=0.075 or 7.5% 3. Leontiiefs wigs can borrow from its bank at 16% to take a cash discount. The terms are 2/10, net 60. Leontief’s should borrow from the bank to take the discount…True or False if false why? % Discount /100 - % Discount x 365 /Credit Period - Discount Period 2%/100-2% X 365/60-10 =2.04*7.3 =14.892 LEONTIEEFS SHOULD NOT BORROW FROM BANK. SO STATEMENT IS FALSE. 4. Mydral boots can borrow from its bank at 12 percent to take a cash discount. The terms are 3/10, net 90. Mydral boots should borrow from the bank to take the discount…true or false, if false why? True....
View Full Document

{[ snackBarMessage ]}