560-Quiz2.docx - 1 Tate Realty is expected to pay a dividend(D1 of \$3.00 next year with the growth(g)in dividends expected to remain constant at 5 The

# 560-Quiz2.docx - 1 Tate Realty is expected to pay a...

• 3

This preview shows page 1 - 3 out of 3 pages.

1. Tate Realty is expected to pay a dividend (D1) of \$3.00 next year with the growth (g)in dividends expected to remain constant at 5%. The required rate of return r is 10%. Calculate Po P0 = D1/(r-g) => [D0*(1+g)]/(r-g) PO = [3*(1+.05)]/(.1-.05) PO = 3.15/0.05 PO = 63 2. Lora Corp. anticipates a non-constant growth pattern for dividends. Dividends are expected to be \$1.30 next year followed by a 15% growth rate until the end of year five. At this time dividends will grow at a 5% rate for the foreseeable future. Use a discount rate of 12% (Ke) throughout your analysis. Round all values that you compute to two places to the right of the decimal point. Calculate Po Common stock valuation Common stock valuation G1 = 15%, n1 = 5, g2 = 5%, n2 = forever, D1 = 1.30, r = 12% => P0 Year Dividend PV of Dividend 1 1.30 1.3/(1.12)^ 1 = 1.16071 2 1.30*1.15=1.495 1.495/(1.12)^ 2 = 1.1918 3 1.495*1.15=1.71925 1.719/(1.12)^ 3 = 1.22355 4 1.71925*1.15=1.977 1.977/(1.12)^ 4 =1.25642 5 1.9771375*1.15= 2.273 2.273/(1.12)^ 5 =1.2897612 \$6.12217 (2.273*1.05)/(12%-5%) = 2.38665/0.07 = 34.095 34.095/1.12^5 =\$19.346 \$19.346 PRICE = \$25.46817 5. Preferred Stock Valuation PPS = DPS / rPS rPS = Required return of preferred stock DPS = Dividend of preferred stock PPS = Price (Value) of preferred stock An issue of preferred stock is paying an annual dividend of \$5. The growth rate for the firm’s  #### You've reached the end of your free preview.

Want to read all 3 pages?

• Fall '19
• Cecilia Ricci, Ph.D.
• • •  