{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Extra Credit Ch 9 H-O

# Extra Credit Ch 9 H-O - to 3 and r M to fall to 10 What...

This preview shows page 1. Sign up to view the full content.

Extra Credit Ch. 9 For students whose last names begin with H-O 1. The D. Wagner Company's last dividend was \$1.00. The dividend growth rate is expected to be constant at 15.5% for 2 years, after which dividends are expected to grow at a rate of 6% forever, and the current stock price is \$22.00. What is Wagner's required return, r s ? ( Hint: This problem is hard, and it is really feasible only with computer access.) 2. Equilibrium stock The risk-free rate of return, r RF , is 8%; the required rate of return on the market, r M , is 11%; and Upton Company's stock has a beta coefficient of 1.80. a. If the dividend expected during the coming year, D 1 , is \$1.50, and if g = a constant 3%, at what price should Upton's stock sell? Round your answer to two decimal places. ________ b. Now, suppose the Federal Reserve Board increases the money supply, causing the risk-free rate to drop
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: to 3% and r M to fall to 10%. What would happen to Upton's price? Round your answer to two decimal places. ________ c. In addition to the change in part b, suppose investors' risk aversion declines, and this, combined with the decline in r RF , causes r M to fall to 9%. Now, what is Upton's price? Round your answer to two decimal places. ________ d. Now suppose Upton has a change in management. The new group institutes policies that increase the expected constant growth rate from 3% to 4%. Also, the new management smoothes out fluctuations in sales and profits, causing beta to decline from 1.80 to 1.00. Assume that r RF and r M are equal to the values in part c. After all these changes, what is its new equilibrium price? Round your answer to two decimal places. ________...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online