Extra Credit Ch 9 H-O

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

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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
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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. ________...
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This note was uploaded on 09/07/2011 for the course BMGT 340 taught by Professor White during the Spring '08 term at Maryland.

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