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

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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:
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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....
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This note was uploaded on 08/22/2011 for the course ACCOUNTING 201 taught by Professor Stevejoseph during the Winter '11 term at Aarhus Universitet.

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

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