CHAPTER9HANDOUT

CHAPTER9HANDOUT - 3) Texas Instruments, a firm with a Beta...

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Chapter 9: Equity Pricing 1) Microsoft Inc. has just paid a dividend of $4.00 per share. You believe Microsoft’s dividend will be paid every year and will remain constant over time. If Microsoft’s required rate of return is 15% per year, what is the price of Microsoft’s stock? 2) Cisco Inc. is planning on paying a dividend of $3.50 one year from today and will pay a dividend on a yearly basis. You believe the growth rate of that dividend will be 6% per year and you know Cisco’s required rate of return is 14% per year. What is Cisco’s stock price?
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Unformatted text preview: 3) Texas Instruments, a firm with a Beta equal to 1.5, is poised for huge growth to the number of calculators projected to be sold to new Finance students in the upcoming years. You believe the growth rate of Texas Instruments dividend will be 25% for the next three years and will then grow at a more modest 6% after that. You know the market has had an average return of 14% and the risk free rate is equal to 2%. What is the price of Texas Instruments stock if they just paid a dividend of $5.00 per share?...
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